Tools of the Trade

Brokers, listen up. Investors will give you more trades if you give them better online investing tools, according to a new report from Internet research firm Gomez. Online information stimulates interaction between brokers and their clients, the report said. In fact, firms that fail to provide planning information, research and account management via the Web are making a costly mistake and risk losing

Brokers, listen up. Investors will give you more trades if you give them better online investing tools, according to a new report from Internet research firm Gomez.

Online information stimulates interaction between brokers and their clients, the report said. In fact, firms that fail to provide planning information, research and account management via the Web are making a “costly mistake” and risk losing business to those that do.

After surveying 2,700 investors, Gomez found that active investors who use Internet tools provided by brokerage firms make 40 percent more trades than those who don't.

More specifically, those investors who make the most of online research are twice as likely to make transactions.

Still, Gomez said, only two — Merrill Lynch and Salomon Smith Barney — of the top 10 full-service brokers rated by the research firm offer all four tools it said are most “demanded” by customers: financial planning, investment selection, research and alerts.

Wirehouses could learn a bit from discounters, who, Gomez said, offer account management, education and administrative functions that are “currently unmatched by the online offerings of many full-service competitors.”

While wirehouses aren't likely to lose much business to discounters, Gomez said in the report, discount brokers “are aggressively pursuing advice relationships, and their online offerings in this regard are considerably superior to functionality and corresponding usability offered in the full-service space.”

The bottom line is that reps who use these Internet tools effectively, educate their clients about investments and encourage them to be more active.

Advisors must realize, though, that because of the glut of investment information being churned out, their role will have to “segue from delivering information to filtering information.”

Prudential Has Most Abuses Over Five Years; Fidelity Has Least
Brokerage Total Actions* Number Per Million Accounts
Prudential Securities 158 72.55
Ameritrade 91 67.11
US Bancorp Piper Jaffray 47 64.46
E-Trade Securities 118 36.92
Raymond James 36 36.07
First Union Securities 88 35.2
UBS PaineWebber 87 34.80
A.G. Edwards 103 31.21
Salomon Smith Barney 204 30.71
Morgan Stanley Dean Witter 151 27.96
Quick & Reilly 34 18.89
Charles Schwab 124 16.53
Merrill Lynch 168 16.09
TD Waterhouse Investor Services 68 15.25
American Express Financial Advisors 19 9.5
Edward Jones 38 8.09
Credit Suisse First Boston 20 4.96
Fidelity Brokerage 43 3.74
* Total Arbitration Cases, Regulatory and Legal Actions from 1997 through 2001
Source: Weiss Ratings

Fun Fact

With General Electric's proposed purchase of Honeywell long dead, there remains only one instance in which a member of the Dow Jones Industrial Average purchased another member of the Dow 30 — in 1907, when J.P. Morgan's U.S. Steel was cleared to buy Tennessee Coal & Iron.

The Dishonor Goes to Prudential

Prudential had the highest rate of investor abuses of 18 leading brokerage firms for the five years ended in 2001, according to a study by Weiss Ratings. Fidelity had the fewest number (per million clients). Weiss analyzed 13,232 arbitration cases and regulatory and legal actions recorded by the NASD against 612 firms. And, says Chairman Martin Weiss, these numbers represent “just the tip of the iceberg,” as the study does not take into account actions resolved before reaching the NASD.

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