Report: Internet Brokerages in Tight Race

Cheap trades, a retirement planner and free unlimited quotes boosted TD Waterhouse to the top of Forrester Research's latest rankings, released Monday, for online brokerage services.

TD Waterhouse obtained a "PowerRanking" of 59.12 to edge out two-time winner Charles Schwab, which came in second this year with a score of 58.63.

Rounding out the top five Internet brokerage firms were CSFBdirect with a score of 58.47, Ameritrade at 58.20, and Datek Online at 57.97.

"The rankings are so tight, with less than two points separating number one TD Waterhouse and last-place E*Trade," said Forrester research director Tom Rhinelander.

"With all the sites providing the basics, consumers have to decide what perks are important to them -- whether it's the security of having Schwab offices just around the corner or the excitement of a real-time, interactive tool like Datek's 'Streamer,'" Rhinelander added.

Cheap Trades

Dooming Schwab to a second-place finish was the fact that it charges US$29.50 for basic trades, compared to the $12 charged by TD Waterhouse.

The Forrester report said that Schwab received a "dead-last" ranking in the "value" category, according to the consumers surveyed.

One consumer polled by the research firm commented that the Schwab fee to trade options is "incredibly high," which makes the trading of options by small investors "nearly worthless."

Also earning low marks for value were sixth-place Fidelity, which charges $25 per trade, and fourth-place CSFBdirect, which charges $20 per trade.

Cost Not Everything

Cost was not the only determining factor, however, in ranking the online brokerage firms.

TD Waterhouse was actually more expensive than two competing online brokerages -- Ameritrade at $8 a trade and Datek Online at $9.99 -- but TD Waterhouse won points with consumers for its customer service and for other features, including an asset allocator, checking accounts and wireless trading.

Despite topping the PowerRankings, TD Waterhouse received low marks for its busy site and the lack of navigational choices offered on the site.

Schwab received high marks for its easy trading and a host of features, including online bill payment, retirement planners, mutual fund selectors and downloadable software for active traders.

Although E*Trade came in dead last in the Forrester rankings, it did win high praise from consumers for its consistent user interface, free online bill payment and wireless trading features.

Stiff Competition

Because the economic downturn has driven many small retail customers away from online trading, Internet brokerages have been fighting tooth and nail for customers in recent months.

For instance, Schwab announced earlier this month that its February trading activity was down 13 percent from January.

As a result of lowered trading volumes and a generally gloomy economic outlook, Schwab said Thursday that it was cutting up to 3,400 jobs and slashing its first quarter earnings estimates. Schwab said it now expects to report first quarter 2001 operating income of approximately 8 cents per share. Analysts had predicted earnings of 11 cents per share.

Need for Versatility

Schwab's decision to cut its workforce followed layoff announcements at both Ameritrade and TD Waterhouse.

Morningstar.com analyst Henry Milling told the E-Commerce Times recently that the coming months will be "very difficult" for independent online financial services firms that only offer online trading.

"The more services a company can offer, the better its chances of remaining independent and alive," Milling said.