• Recommend:
• 0 Comments

ETrade Ranked Number-One Online Broker

Adding better tools and resources, ETrade gets top rating for online brokerage.

By Lisa Moskowitz, PCWorld   

In the last three months, online broker ETrade has acquired a company, gained $400 million in funding, and reported third-quarter revenues of $62.3 million, up 17 percent from last quarter. And now it has claimed the top spot on the Internet Broker Scorecard kept by Gomez Advisors, a leading independent authority on online financial services.

In the Sweet Spot
With an overall score of 7.4, ETrade claims the lead by a very comfortable margin. The closest competitor, DLJdirect, is 0.44 points behind, which is the largest gap between any two consecutive brokers on the list of the top 20. DLJdirect had held the number one slot for four consecutive quarters.

Steven Hall, senior analyst at Gomez Advisors, credits ETrade with several improvements made over the last three months, including a better-organized Web site, the addition of real-time quotes and institutional quality research data, and an improved online demo. "The site is easier to use and they've added investment content that's valuable and organized according to investor profiles," Hall said. A wholly redesigned site is planned for launch in September.

ETrade also came in first in the Ease of Use category. As far as matching Gomez's customer profiles, ETrade was recommended the number-one online broker for the Life Goal Planner, Serious Investor, and One-Stop Shopper.

Rounding out the top five were Discover Brokerage, Waterhouse, and Datek Online in third, fourth, and fifth places, respectively.

Chopping Commissions
Surprisingly, ETrade plummeted to twentieth on the list for Overall Cost. According to Hall, while ETrade maintained its $14.95 rate for listed market trades and $19.95 for NASDAQ trades, other brokerages slashed their commissions to less than $10 per trade. "At that rate, it's very difficult to compete," he said. "The difference is that ETrade is competing on overall value by offering more resources and information, rather than on cost."

Hall noted that the online investor profile is changing. Until recently, the hyperactive trader was the primary online brokerage customer, and the online brokerage with the lowest rates was their destination. Online services need to offer value-added tools and resources to retain these hyperactive traders or attract different kinds of customers. ETrade's focus is on providing the resources that will keep an array of investors happy, Hall said.

Among the lowest priced online brokerages are Brown & Company with $5 market orders and $10 limit orders, Lindner.Farsight with $7 trades, and Suretrade with $7.95 flat fee trades.

Changing Investor Profiles
As Hall described it, online brokers are starting to gear their services towards the Life Goal Planner, an investor who's in it for the long term, and the One-Stop Shopper, an investor who wants the convenience of visiting a single site for all of their financial needs. The key is to lure customers away from finance channels of the ever-popular portals like Excite and Yahoo by offering valuable tools and online transactions.

In this quarter's score card, 25 banks made the overall list of 89 brokerages surveyed. That's double the number of banks included in last quarter's rankings, Hall said. But online brokerages probably don't need to worry about the trading services offered by these banks, he said. "Banks are not offering a prime service with their brokerages," Hall said. "To them it's like providing an ATM. It's something they have to offer as part of the overall package."

The advantage a Wells Fargo or NationsBank has over their online brokerage cousins is their tremendous client bases. Add quality brokerage services to the already comprehensive financial services found on online banking Web sites, and there is enormous potential for growth, Hall said.