By Andy Serwer Reporter Associates Christine Y. Chen, Angela Key

(FORTUNE Magazine) – Have you seen that TV ad for an online brokerage in which this vivacious blond woman clicks away on her PC while extolling the joys of trading online? In the end she jumps up, pets her dog, and gushes, "I almost feel like I'm on Wall Street!" Well, we have news for you, gal! You are on Wall Street. Or rather, you are Wall Street.

For better or for worse (and for richer or for poorer), we are fast becoming a nation of stock traders. And while it's easy to get caught up in all the hoopla over deranged day traders and zany Internet IPOs, the real story runs much deeper than that. What we have here is nothing short of a revolution. Power that for generations lay with a few thousand white males on a small island in New York City is now being seized by Everyman and Everywoman. In fact, it's no overstatement to suggest that this movement from Wall Street to Main Street is one of the most significant socioeconomic trends of the past few decades. It's not only changing the way we invest, it's changing the way we work and live too. And it's sure as hell rocking the boat on Wall Street.

Contrary to conventional wisdom, our new national fixation with investing can't be written off as simply a sign of a market top (you know, where the rubes all rush into the market when stocks are high). Of course, there is some of that in this, the greatest bull market in history, but even if the market tanks, the vast majority of us will stay in the game. We have to. Because for more and more Americans, our money is no longer in the hands of schlumpy stockbrokers or fancy-Dan fund managers. Our money is with ourselves. We have become the land of the self-invested.

Like most transformations, this shift to controlling our own financial destiny seems to have happened overnight, but it didn't. For much of the nation's history, of course, Wall Street has had a monopoly on all facets of the capital markets. It controlled not only the financing of America's companies (the institutional side of Wall Street) but also the investments of individuals. Stocks? First of all, very few Americans owned them. Those who did had accounts with full-service brokers, who managed portfolios with almost complete discretion. They told us when to buy and sell. Remember? As for commissions, well, they simply weren't discussed! After all, they were regulated, right? You paid through the nose and accepted it. Meanwhile, your broker took Fridays off to play golf and over the years built up a nice little chunk of change at your expense. Best of all, from the brokers' perspective, not only was this monopoly unthreatened, for years it wasn't even questioned.

But then cracks began to appear. As increasing numbers of Americans joined the middle and upper-middle classes, demand for financial services soared, and eventually competitive pricing entered the picture. A great democratization of the investment business began. (My colleague Joe Nocera literally wrote the book on this subject, A Piece of the Action: How the Middle Class Joined the Money Class. In the following story, he explores the effect of the current market obsession on his hometown, Providence.) Mutual fund companies like Fidelity and Dreyfus began offering investors access to relatively low-cost, diversified portfolios of stocks that anyone with $1,000 in his pocket could buy. Federal regulations governing retirement accounts were overhauled, allowing--and in many cases obligating--individuals to manage their own nest eggs.

In 1975, Washington deregulated commissions on brokerage accounts, and Charles Schwab and others created the discount brokerage business. Schwab & Co. figured out that there were a lot of sophisticated investors out there who didn't want to pay for a broker's advice. These folks knew what they wanted to buy and sell, so why should they pay for a broker's overhead? Ditto for mutual fund investors. Why pay even 2% a year so some dude in Boston can pick your stocks for you? That's why managed mutual funds are hurting, as the final story in this package shows, while investors are opting for super-low-cost index funds that just aim to match the market's overall return.

And now, over the past year or so, comes the main event. I'm talking, of course, about online trading. It's here. It's real. And it's growing as fast as, well, the Internet!

The online trading business actually got off the ground 12 years ago, when a Prodigy executive named Orrin Beissinger called up Dick Pechter at DLJ (having been turned down by Schwab, Fidelity, and Dean Witter) and asked if he would be interested in setting up an online brokerage business for Prodigy. Why not? said Pechter, and soon enough a modest business was born. "For the first couple of years, we'd sit around in a room and wait for orders," says Blake Darcy, CEO of the descendant of that operation, DLJdirect. "We could tell when we got one, because we'd hear the dot-matrix printer cranking up, eeeeeeeYUP! We'd tear the order off the printer and place the trade. If we did a dozen trades a day, we'd be on top of the world. My friends thought I was nuts." As recently as 1992, DLJ's little online trading business was still doing only 400 trades a day. Then, in 1996, Darcy moved the business onto the Web. Today DLJdirect does 20,000 trades a day and is growing more than 74% annually. But over the years the firm lost its leadership position, and it now ranks as the seventh-largest online broker, after Schwab, Fidelity, E*Trade, Waterhouse, Ameritrade, and Quicken.

How big is online trading now? Well, some 42 million out of 99 million American households have PCs, and 24 million have Internet access. About 12 million of those households now have online accounts, and those folks are making more than a half-million trades a day. The percentage of U.S. investors trading online is now about 12.5% and is expected to climb to 29.2% by 2002. If anything, the latter figure could be low. Merrill Lynch and the other full-service big boys are just now furiously retooling their businesses to offer online service.

The attraction of online trading is obvious. With the click of a mouse, through any one of scores of online brokers, you can buy and sell any stock anywhere in the world, day or night, for just a few bucks a trade. IPOs? Now you can buy 'em directly (or try to buy 'em; shares are scarce!) from online underwriters. And of course online brokerages are just the most high-profile venues of the info age personal-finance world. There are online banks. Online mortgage brokers. Online business news services. Investment chat rooms for cybersquabbling over stocks. In fact, an entire parallel e-universe of financial services has opened for business over the past year and a half. Meanwhile, back in the material world, all sorts of tertiary markets and businesses are booming. Investment books are flying off the bookstore shelves. Two-way pagers, the communication device of choice for the on-the-go trader, are red-hot. Investing clubs now exceed gardening clubs in popularity by more than four to one. And entire television channels--CNBC, CNNfn, and Bloomberg--cater to this new community of online investors.

Okay, so online trading is big. It's inexorable. But is it a good thing? Unclear, says SEC Commissioner Laura Unger. "There are two theories about online trading," she says. "There is the investor-empowerment theory, which says that the Internet is a good thing for investors. It pushes the securities industry to offer after-hours trading and to create new exchanges.

It forces direct distribution of IPOs, the opening up of conference calls. It expands investor-relation functions at companies. But there is also the investor-excitability theory, which says that the Internet just makes investors excited. It's a fact that the online experience increases trading. Clearly that's good for brokers. But is it good for investors?"

Might not be, Commissioner. "When investors go online, they do increase their trading activity," says Darcy of DLJdirect. "And in general, active traders do not do as well." That disturbing little factoid puts online firms in a pickle, because while they want active accounts, they don't want investors to become so active that they begin to bleed money and go offline. Furthermore, even though the E*Trades of the world don't offer advice to customers, it's obvious that online brokers can stimulate trading by their customers. Example: Say the XYZ.com online brokerage sees that its customer, Andy Serwer, just bought 300 shares of Oracle and already owns 200 shares of SAP. Sending Serwer some information on PeopleSoft, another software company, might give him the urge to pick up a few hundred shares of PSFT, right? And that cuts pretty close to being a full-service broker, doesn't it? Could be. "We are right now trying to figure out if targeting info means more suitability obligations for the online firms," says Unger.

The bottom line is that this new world of online investing is changing so fast that no one really knows what it will look like next year, never mind five years from now. Of course, brokerage bigwigs have some notions. "We see the pure online business as transitional," says Allen Jones, director of marketing for retail brokerage at Merrill Lynch. "Pure online will end up being a niche business. Most people are going to want a combo of online, discount, and full service." Before you write that off as wishful thinking by an executive at a firm with $1.5 trillion in customer assets and 16,000 stockbrokers (many of whom are steaming over Merrill's recent moves into the online business), you should know that Darcy and Charles Schwab CEO Dave Pottruck agree with Jones. "Customers want a variety of distribution channels," says Pottruck. "Face to face. The mail. The telephone. And the Web. We have to match up the right medium with the right interaction so that customers feel most comfortable."

So yes, the investor-taking-control-of-his-or-her-own-destiny revolution is upon us. And yes, trading online is growing at an explosive rate. Mostly that's a good thing, but it's kind of like raising the speed limit on a highway. Some people will drive too fast and crash. To me, though, the real issue is, Do Americans really want to spend their lives running their own money? I mean, how many hours a day can anyone watch CNBC? How many quarters can anyone wait anxiously for Cisco to announce earnings? After a while, some of us might want to go ride a mountain bike, or cook a meal, or spend time with our kids. And that's why that multichannel model makes sense to me. Sure, you have an online account. But why not own a few mutual funds, because they're easy, and maybe work with a broker or financial planner for the bigger-picture stuff? That's the beauty of the new order. You make the call.

REPORTER ASSOCIATES Christine Y. Chen, Angela Key