Online
Trading Nets Mixed Reviews
from Investors and Experts
by Andrew Leckey
Reality
check: Online trading in 2000 remains somewhat of a mixed
bag. This modern phenomenon has taken hold from coast to coast,
with more than 200 Online brokerage firms and 10 million Online
accounts.
Potential for growth
remains limitless. While the slump in trading volume that followed
the market's springtime decline has taken a toll on the bottom
line of Online brokers, only about 4 percent of the 103 million
U.S. households have traded Online thus far.
Unfortunately, there's
also been some potential for mistakes, especially trading errors
due to computer glitches. Many investors experienced great difficulty
making transactions during extremely busy periods, and virtually
everyone encounters slowdowns from time to time.
Also, staffing at some
firms seems inadequate and inexperienced.
Matthew Tobin, a physician
in Ocean, NJ, believes the low-commission firm he deals with
takes too long to credit the checks he sends to his accounts,
doesn't make staff members accountable by name and isn't clear
about the confirmation of his trades.
"There are times
when I place a trade one night and don't get confirmation until
the following afternoon," said Tobin, who opened his account
a year and a half ago. "Plus, the free investment information
it gives isn't as good as what you can receive from some other
sites, and you must pay for anything that looks good."
But others, such as
retiree Armand Locke of San Rafael, CA, love their Online accounts.
"I never have
to worry about getting a broker, I never have to worry about
the phone line being busy, and it gives me the time to do a little
bit more thinking on my own before I have to make a decision,"
said Locke. "I can wake up in the middle of the night and
feel nervous about a stock, and just boot up my home computer
and sell that stock."
An Online investor
for eight years, Locke says the process has become easier because
firms have improved their technology.
"This is a new
industry and many Online broker firms have simply been overwhelmed,"
explained John Markese, president of the 180,000-member American
Association of Individual Investors based in Chicago. "While
they may not have the capacity, operational systems or staff
to handle it all, remember there are lots of problems with full-service
brokers, as well."
Both Online and full-service
brokers could do better jobs of educating people about the investing
process, he believes.
If you seek only the
very lowest commissions, in some cases you may encounter less
customer satisfaction, as well.
"While
there are a lot of commission packages for active traders as
low as $5 a trade, most folks will find that Online commissions
range from $8 to $35," said Kenneth Clemmer, consumer research
analyst with Forrester Research in Cambridge, MA. "Commission
size matters a lot if you trade very frequently, but for most
people the difference between $8 and $35 isn't much when you
consider what you might be getting in service for that price
difference."
The industry has taken
a much needed breather. "Customer service has shown signs
of significant improvement as the market and transactions have
slowed down," observed Dan Burke, senior brokerage analyst
with Gomez Advisors (www.gomez.com) research in Lincoln, MA.
"Staff hiring that a lot of the leading Online brokers have
embarked upon is starting to bear fruit."
Active traders were
the first to trade Online, but now entering the fold are mainstream
investors interested in planning, mutual funds and occasional
stock buying, Burke said. Trading sites have become advanced
and downloading has become quick, making a standard Pentium machine
with 32 to 64 megabytes of RAM and a 56K modem more than adequate
to trade.
In the latest Gomez
survey, the highest-ranking Online brokers, taking into account
ease of use, customer confidence, on-site resources, relationship
services and overall cost, are:
(1) Charles Schwab,
(2) E(PLUS)Trade, (3) Fidelity Investments, (4) DLJdirect, (5)
Merrill Lynch's discount unit, (6) TD Waterhouse, (7) National
Discount Brokerage, (8) A.B. Watley, (9) Siebert and (10) American
Express Brokerage.
The lowest-cost brokers,
according to Gomez are Firstrade, Trading Direct, Web Street,
American First Trader, Scottrade, Datek and TD Waterhouse.
"While we've received
complaints form Online investors unable to get through during
computer system failures, it's relatively small in light of the
number of accounts and transaction volume," said Barry Skolnik,
president of the North American Securities Administrators Association
(NASAA) and also Indiana securities commissioner.
NASAA offers these
Online trading tips:
- Receive full disclosure about alternatives for buying and selling securities, and how to obtain account information if you can't access the Web site.
- Get information from the firm to verify advertised claims about ease and speed.
- Find out about entering and canceling orders and the details of margin accounts.
- Determine whether you're receiving delayed or "real-time" stock quotes and when your account information was last updated.
- Review privacy and site security policies and find out whether your name may be used for mailing lists.
- Receive clear information about sales commissions and fees and conditions of advertised discounts.
- Contact your state securities agency to verify the firm's registration/licensing status and disciplinary history.
