|
Morgan to compete online
|
 |
October 18, 1999: 5:49 p.m. ET
No. 2 brokerage could beat Merrill to market with Internet trading option
By Staff Writer Tom Johnson
|
NEW YORK (CNNfn) - Morgan Stanley Dean Witter is preparing to revamp its retail brokerage operations to give all its customers access to a discount online trading service, several people with knowledge of the plan confirmed Monday.
The plan involves rolling its current online service, Discover Brokerage Direct, into its traditional retail brokerage and charging customers either a flat $29.95 fee per online trade or an annual fee based on assets controlled through a full-service brokerage account, sources said.
Morgan Stanley officials declined to comment on the program, but according to the New York Times and Wall Street Journal, which first reported the story Monday, the company could unveil its plan as early as this week.
The strategy mimics one announced in June by Merrill Lynch & Co. (MER), the nation's largest brokerage house, as a method to retain its wealthy clientele while fending off other, less expensive, online services.
But while Merrill is on target to launch its online program by Dec. 1, Morgan Stanley (MWD) apparently will be ready to initiate its program almost immediately, giving it what company officials hope will be a competitive leg up on a top competitor.
"It's a very smart investment," said Dean Eberling, an analyst at Putnam, Lovell, de Guardiola. "By and large, customers want the ease of access and the ability to do research during the off-hours."
Timing may not provide edge
Merrill officials and analysts played down the timing of program's launch, however, noting a six-week lead over Merrill isn't likely to sway many customers one way or the other.
"It's just stupid," said Susan Thomson, a Merrill Lynch spokeswoman. "We absolutely and fully expected others to follow our lead on this and this announcement comes as no surprise to us."
In fact, Guy Moszkowski, an analyst at Salomon Smith Barney, said Morgan Stanley's decision to combine its Discover operation and its traditional brokerage business into one entity was an "interesting validation of Merrill's strategy" to run the two operations under one roof.
Still, Moszkowski and others said Morgan Stanley could gain an edge over Merrill, at least initially, because it has experience operating an online trading service in Discover, which it acquired in 1996.
Morgan has kept Discover -- originally called Lombard Brokerage -- at arm's length since that time, choosing to run it as a separate operation from its traditional brokerage business, which employs roughly 11,000 full-service financial consultants.
"Morgan Stanley has a leg up because they've been there and done that," Eberling said. "The Lombard acquisition was really a perfect edge for them in that it gave them a nice window into the world of online trading."
Discover customers could flee
Morgan Stanley has spent tens of millions of dollars promoting the Discover brokerage business through advertisements, the Times said, but risks losing some of those customers under the new system because it will practically double their $14.95 per trade fee.
E-commerce analysts noted those losses could be minimal because Discover's price scale is already higher than several other discount services, meaning its customers ultimately may be more interested in Morgan Stanley's extensive research capabilities than just finding the cheapest price.
"It's not like they were the most aggressive out there on price anyway," said Dan Burke, a senior analyst with Gomez Advisors, an e-commerce research firm.
The $29.95 fee, which matches what Merrill and Charles Schwab Corp. (SCH) charge for their online services, at least threatens to hinder Morgan Stanley's short-term revenue stream, but most analysts said the company's revenue stream is so large and well diversified, its impact likely would be minimal.
There is also the question of how Merrill will choose to compensate its brokers, who could face having their annual commissions cut under the new pricing guidelines. Merrill, for instance, agreed to pay its brokers whatever revenue they would have earned under the old system for the first two years.
The Times quoted people close to Morgan Stanley as saying Merrill has still seen an unusual number of brokers defecting since announcing its plan, but Thomson called that report "completely erroneous."
Morgan Stanley's stock jumped up 2-1/4 at 90-3/8 on speculation of the online trading program Monday. 
|
|
|
|
|
 |
|
