LEARNING FROM ONLINE BROKERAGE FIRMS.

• Author: Bernstel, Janet Bigham
• Position: Charles Schwab Corp., marketing by online brokers and banks

Who does a better job at marketing: banks or broker ages? If there's any doubt in your mind, take a peek at what's happening online--the cutting-edge these days of financial services.

Call it good marketing, morphing or a brilliant ability to do both, but online brokerages continue to take the lead over online banks in customer popularity. It's not just pure Internet players, either. Even full-service brokerages that until recently were laying low on the Internet radar--such as Merrill Lynch--are expanding their Web services due to customer demand. And these brokers are scoring big.

Assets held in online brokerage accounts are predicted to grow from $1.1 trillion in 2000 to $3.2 trillion in 2004, according to the eInvesting Report released in November 2000 by eMarketer. Compare that to the $9.6 billion in FDIC insured deposits in 1999, of which pure Internet banks accounted for only 2 percent. How does online brokerage growth continue despite the fact that recent market volatility has resulted in a real dip in online trading transactions? The secret of success is fairly simple--brokers have learned to stay nimble.

"When the transactions go down, and your whole model was based on the number of transactions going out, you've got to rethink your model," explains Paul Mulligan, analyst, financial services, for New York-based eMarketer; and author of the report. "I think Charles Schwab has been perfect at rethinking their own strategy. Buying USTrust, they said, 'Lets get high net worth in here.' Obviously they're looking at what high net worth wants, which is personalized investment advice."

Schwab's overall success is a good example of how agile a large firm can and should be. Having established an online presence in the mid-1990s the company is now one of the largest online brokers, capturing 22 percent of all Internet trades. Schwab also held on to the number one position in the Gomez Top Internet Brokers for Summer and Fall 2000.

"We focus on customers and work very, very hard to keep from getting in our own way," says Dan Leemon, executive vice president and chief strategy officer for the Charles Schwab Corp., San Francisco. "What I mean by that is that we never construct an incentive that pits a Schwab employee against a customer, and we try to stay in distributor mode, never 'protecting' the profit of a particular product or service at the expense of the customer's best interest."

Gomez cites the firm's ability to "improve the online investing experience for its customers and prospects alike." Translate that into: They make it easy to open an account, research, trade and organize a portfolio online.

"We treat customers as smart and independent people," claims Leemon. "And we recognize that all channels are important and must work together--different customers want to interact in different ways at different times."

Think high net worth, if you like, when you look at offerings on Schwab's site, such as the last November's wireless trade deal for the PocketBroker. If for some reason you didn't have a cell phone, you could get one free, plus commission-free PocketBroker trades, when you signed up for a Schwab's account: minimum opening balance--$10,000. And Schwab recently inked a deal with American Online (AOL) that makes Schwab the primary financial services and brokerage firm in the Internet service provider's personal finance channel. That means not only do AOL's 28 million members have access to Schwab's financial products, but Schwab also has access to 28 million potential customers.

"The AOL deal is a major step into the 'mass adoption' phase of the Internet," explains Leemon. "The association of the two brands reinforces each brand's image relative to technology and innovation. We've done enough online marketing to know that a lot of the past...