REVIEWED BY THERESA W. CAREY
Edited by Randall W. Forsyth
After flirting with the idea for a year, Merrill Lynch finally announced last week that it's preparing to offer discounted online trading to its customers. What's next, investment advice in the Village Voice? After all, last summer, both Merrill and the Voice railed against online trading as being hazardous to your wealth.
To be sure, trading online isn't without its travails. Barron's annual ratings of online brokers attempts to put them through their paces as a typical investor would. But we can't test under real battle conditions, so we've sought the experiences of our readers. We've set up an informal readers' advisory board that will keep us updated on life in the trenches.
If you'd like to join in, please send us a description of your cyber trading triumphs and woes, especially related to areas that are difficult to test during our annual survey: opening an account, day-today customer service and what it takes to switch assets into or out of an account. E-mails poured in after our initial request last month, then continued to trickle in through the Memorial Day weekend. Our thanks to readers who took the time to share their experiences; please continue to send them along by e-mail to electronicinvestor@mailcity.com.
The messages we've received were surprisingly positive, given all the glitches reported about electronic trading. Many wrote of having had good experiences opening accounts with the major players: DLJdirect, Discover Brokerage Direct, E*Trade, Datek, Scottrade, Web Street Securities and others. A few described terrible times dealing with the very same brokers.
Overall, about 60% of respondents recounted bad experiences; 30%, good ones, and 10% were mixed. We'd interpret this as positive, considering that dissatisfied customers are the ones most likely to provide feedback.
Day trading, of course, has burgeoned online, and not just among Gen-Xers. It's "become the new shuffleboard," says reader Joe Burns of his new hobby. "Everyone is doing it, and those that aren't are still intimidated by the byte monster."
You can't day trade if you can't open an account, however. Following my complaint in the May 10 Electronic Investor-that my check to E*Trade had been deposited on April 22 but the account info had yet to show up-an E*Trade official checked my records and sent me a new customer kit via overnight express. E*Trade customer service representatives claim the kit was mailed on April 23, but it never arrived at my home in Tokyo. I received a kit several weeks later, accompanied by a letter dated May 14.
One reader shares my initial reaction to the letter E*Trade sends after an account is opened. In big bold letters, it lists both the account number and password. It strikes us both as a major security risk, if anyone other than the intended recipient were to open it.
I logged onto E*Trade right away, hoping to make a trade, but kept getting an error message saying my password was incorrect. After several unsatisfactory e-mails with customer service, all of which prodded me to call an 800 number-which isn't free when calling from Japan-I took a hard look at the letter. That's when I noticed that the customer ID was longer than the one I used for testing E*Trade during the course of our annual review. A closer examination revealed that someone had neatly hand-written two zeros at the end of my customer ID, creating an invalid account number. No wonder the E*Trade system couldn't figure out who I was.
In the silver-lining department, all the problems I've had with E*Trade-both logging in and enduring delays to execute trades-have helped me memorize the account number, because I've had to type it in so often.
Once I dropped the handwritten zeros, I was able to log in. I've noticed, however, that it's very difficult to access my account in the first hour after the market opens. While writing this column, I experienced a delay of well over two hours logging on at the beginning of the trading day, while my Fidelity account was readily accessible. In the meantime, the stock I wanted to buy went up 5/8 -point. So, readers, I feel your pain.
My e-mails have been promptly answered, and I doubt it's because anyone in the customer-service department recognizes my name. Other readers, however, haven't been so fortunate: Jim Meador-Woodruff says he called E*Trade and "spent 90 minutes on hold-I am not kidding. I resorted to the phone only because e-mail attempts were not being answered."
E*Trade isn't the only online broker to draw complaints. DLJdirect has had numerous problems accommodating the rush of customers since it garnered our top ranking this year. In our view, this is a problem with just about every online broker judged No. 1 by Barron's or any other major publication. In any case, DLJdirect has angered a significant number of potential customers with delays in mailing forms, cashing checks and setting up accounts.
Far worse, however, are the allegations that Datek diverted customer funds for operating expenses, which causes us to downgrade its rating-a first since we started ranking online brokers in 1996. We're cutting Datek's Reliability rating to 1.5, which lowers their overall rating to 2.5 stars, down from 3.5. (For more on Datek, see page 46.)
Lon Crow makes an interesting observation regarding the crashes that seem to plague the highly ranked online brokers. "My suspicion is that the traders are migrating from service to service, which explains why an online broker can be very good early but becomes a nightmare once its popularity increases." While Crow suggests that it might be a good idea to avoid the highly rated firms, we continue to advise investors to maintain more than one account. In the market's currently volatile environment, bad things can happen to good brokers.
Portfolio Manager Update: Around this time last year, we looked at a couple of portfolio managers that you can download from the Web, register online and update online as well. Reeally! by ManticSoft (www.manticsoft.com)is a flexible program that tracks a portfolio and provides an internal rate-of-return calculation that takes into account cash inflows and withdrawals and their timing. Two versions are offered: the Standard, which costs $150 to register and can handle stocks (including short sales) and mutual funds, and the Pro, which runs $525 and also handles bonds, CDs, options, futures and real estate.
One of our criticisms last year was that Reeally forced you to re-enter all your transactions since the beginning of time; now if you've been assiduously entering your sales and purchases into Quicken (or a program that can produce a compatible .QIF file), Reeally will read the data and save you a lot of work. Another slick addition is the ability to create a report for any date in the past. The version we reviewed last year could report only on the most recent date on which the data file had been updated. Check it out; it's definitely worth the download. You can use the program free for 21 days.
Other Electronic Investor e-mail: randall.forsyth@barrons.com.