Reuters: Money: Schwab, E*Trade et al outpacing traditional brokers

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Schwab, E*Trade et al outpacing traditional brokers Mar 23rd 2012, 19:50 By John McCrank NEW YORK | Fri Mar 23, 2012 3:50pm EDT NEW YORK (Reuters) - Discount brokerages, once the domain of do-it-yourself investors looking for cheap trades, are increasingly getting into the personal advice business, filling a void for middle-class investors left by big, traditional brokerages. Fee-based assets at discount brokerages like Charles Schwab Corp, Fidelity Investments, TD Ameritrade, and E*Trade Financial, grew by a compound annual rate of 19 percent from 2008 to the end of 2010, versus 14 percent at so-called wirehouses such as Morgan Stanley, according to research firm Cerulli Associates. "A large part of the growth that we've seen in these firms and also the future growth that we're projecting is going to be linked to their ability to deliver advice programs," said Katharine Wolf, associate director at Cerulli. Even Charles "Chuck" Schwab, a pioneer in offering cut-rate commissions to people making their own investment decisions, said he uses advisers to manage his portfolio. Much of Schwab's growth in the self-directed space came during the bull market from 1983 to 2000, when picking winning stocks was likened to throwing darts at a board. In the dozen years since then, the equity markets have been volatile, but have basically come out flat. "Investors are increasingly saying: 'It's more complicated than simply going to a website, picking out some stocks, buying them and hoping they go up,'" Walter Bettinger, chief executive of Schwab, said in an interview. Schwab has been offering advice to investors for the past decade, a point it has highlighted since 2005 with its "Talk to Chuck" advertising campaign. Clients of the San Francisco company, which reported overall assets of $1.81 trillion at the end of February, have added an average of $1.5 billion a month for the last 14 months to Schwab advisory programs, with most coming from self-directed accounts. FILLING THE VOID Over the last decade, brokerages like Morgan Stanley, Wells Fargo, UBS, and Merrill Lynch, have pushed further upscale in the clients they serve, because big accounts bring bigger profits. That has opened up room for the discount brokers, which have aimed at investors with assets of up to $250,000. Wealthier clients are often referred to registered independent advisers that use the brokerages' back office and custody services. Last year, about one in six of Schwab's more than 3 million U.S. household accounts met with one of its financial consultants, and another 100,000 attended Schwab workshops. The company has about 1,500 financial consultants in branches, and more than 1,000 who take more than 10 million in-bound phone calls a year. Bettinger said those numbers would most likely rise due to strong demand. In June of 2010, Merrill started Merrill Edge, an online and branch-based brokerage targeting middle-class investors, but they are more the exception than the norm when it comes to the traditional brokerages, said Alois Pirker, an analyst at research firm Aite Group. "Some firms will have to learn it the hard way and they will start to adapt as the online firms start to adopt the full-service firms type of capabilities," he said. GETTING THE WORD OUT Bettinger said that of Schwab's approximately $750 billion in retail assets, $116 billion is now in advice-based services. "That means there is in the ball park of $650 billion in our retail business that isn't partaking in any form of fee-based advisory services. So, there is still a lot of opportunity." That opportunity is not lost on Schwab's competitors either. "Three words, Dad: E*Trade. Financial. Consultants," the ever-popular E*Trade baby advised in the firm's highest profile television commercial of the year, during February's Super Bowl. E*Trade said it recently connected some of its top clients with financial consultants, and those clients ended up bringing substantially more assets to the firm. E*Trade had $166 billion in brokerage and stock plan accounts at the end of February. The New York-based firm, which began as an online brokerage, increased the number of its financial consultants last year by 42 percent to just under 300 people. Rival TD Ameritrade will use its sponsorship of the U.S. Olympic Team heading into the London Olympics to promote its financial consultants, through television and other media in its biggest ever marketing effort. (Reporting By John McCrank; Editing by Walden Siew) Link this Share this Digg this Email Reprints

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