Brokers debate fee to charge investors

Merrill official suggests 1% as maximum rate

Stock accounts

November 07, 1999|By BLOOMBERG NEWS

BOCA RATON, Fla. -- U.S. investors should pay brokers an annual fee of no more than 1 percent of the equity assets they hold for full-service accounts, Merrill Lynch & Co.'s brokerage chief contends.

That's what Merrill is charging for an account it started in July that combines a broker's advice with unlimited trading over the Internet, and it's less than half the 2.25 percent that rival Morgan Stanley Dean Witter & Co. is charging clients who have less than $250,000 in similar accounts.

"I think 2 percent is too high," said John Steffens in an interview after a speech to 700 members of the Securities Industry Association at their annual conference here. Merrill's fee of 1 percent for equities and 0.3 percent for bonds will "end up being the standard," he said.

The biggest U.S. brokers are scrambling to satisfy investors demanding financial advice and trading options, including the ability to buy and sell using home computers. Pricing is a concern, largely because online brokerage firms, which don't offer advice, are grabbing clients with fees often 90 percent cheaper than those charged by traditional brokers.

Among other full-service firms with new accounts, Paine Webber Group Inc. offers investors with a minimum of $100,000 in assets online trading and advice for an annual fee of between 0.75 percent and 1.5 percent of assets. Prudential Securities charges 1.5 percent of assets plus $24.95 a trade for a similar account.

Comparing Merrill and Morgan's fee structures, a customer with $150,000 in a Merrill account would pay $1,500 in fees a year, and a Morgan Stanley client would pay $3,375.

Merrill's account has a $1,500-a-year minimum fee. Both brokers drop the rates for wealthier clients. Morgan Stanley gives brokers discretion to set fees, depending on a client's trading activity.

Steffens oversees about 15,000 brokers, the country's biggest financial sales force.

"I won't say they are all crazy about" the 1 percent fee-based account's debut in July, he said. "But they are obviously being very successful at building" the popularity of the account, called Unlimited Advantage.

About 1,400 new accounts are being opened every week, he said, up from about 900 a week in August. "We've seen a significant pickup in the last few weeks."

The company said last month that Unlimited Advantage boosted assets in Merrill fee-based accounts by $16 billion in the third quarter, of which about 20 percent was new to the firm.

Merrill also is on track to introduce online trading for as little as $29.95 a trade Dec. 1 through Merrill Lynch Direct, a new unit. The service will include trading of most stocks and bonds immediately, options trading in the first quarter of next year and mortgage and high-yield bond trading later in the year, Steffens said.

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