Online nest eggs

Net brokers say mainstream investors will rule the roost

January 10, 2000|By Lynnley Browning | Lynnley Browning,BOSTON GLOBE

Who is the new icon of America's obsession with investing? Is it "Stuart," the frenetic 20-something with spiky orange hair who hypes an Internet brokerage to his boss? Or is it Shelly Glazier, a 64-year-old medical office administrator who spends an hour each night poring over her portfolio, trading stocks online just several times a year?

"Stuart," the wild-maned star of a television advertising blitz by Ameritrade, a Web brokerage, might cast the country as a nation of gamblers. But it is real people such as Glazier who are fueling a revolution in how Americans manage their money in the digital era.

In a pivotal shift, experts expect older citizens with sizable income and middle-class folk with careful savings habits to constitute the bulk of Web investors in the coming years. Aggressive traders like Stuart, the original acolytes of Internet stock-picking, are peaking in number.

"Mainstream investors will form the majority of future online investors," said Kenneth Clemmer, an analyst at Forrester Research, a Cambridge, Mass., consulting company.

When Internet brokers exploded onto the scene four years ago with fast, low-cost trading, they targeted risk-lovers hoping to get rich quick. Do-it-yourself stock-picking was a novelty. Old-fashioned money managers such as Merrill Lynch ignored the upstarts. Even innovators like Charles Schwab, the pioneering discount brokerage, were skeptical.

Now on the defensive, established players are reinventing themselves online and transforming Web investing into a mass-market phenomenon. The changes are prompting cyber-competitors like E*Trade and Datek to revamp themselves to appeal to ordinary investors. "Traditional is moving online, and online is becoming more traditional," said Dan Latimore, a consultant at Mainspring, an e-commerce research firm.

The convergence of the two worlds -- one rooted in branches, stockbrokers, and advice, the other a click-and-trade planet -- has ignited a war for the next generation of investors. Billboards are plastered with pitches from online brokers old and new. TV is glutted with online investing spots.

With most active traders online, brokers of all stripes must find ways to lure ordinary investors, who want not just cheap trading but extensive research, analysis, news, money management, retirement planning, even advice.

"There's a certain maturing of the market," said Richard Sylla, a financial historian at New York University's Stern School of Business. "Instead of the glitz of trading, the talk is now about how you can attract more stable customers."

Consider Glazier, by many indications one of online investing's new, core customers. "I would call myself an investor, not a trader," said Glazier, who buys and sells stocks once every couple of months through Charles Schwab & Co., the nation's biggest Web investing company. "Generally, I try to buy good companies to begin with and stay with them."

Glazier, who manages appointments at Children's Medical Care North in Chelsea, Mass., recently bought another 100 shares of Sun Microsystems and dumped Boston Market, the ailing restaurant chain acquired by McDonald's Corp. Unlike the first generation of Web traders, Glazier keeps an account at a full-service brokerage, Tucker Cleary. And she remains devoted to mutual funds, only now she buys them online.

Glazier's son, Kenneth, also trades online, keeping accounts at two discount brokers. "They make it so easy, you might trade stocks that you might never buy if you had to pay more to a broker to do it," said the orthopedic surgeon, 46. "It's good to have advice, even if it's online."

In the years since the Internet turned brokers' $200 commissions into do-it-yourself trades costing as little as $5, some 7 million households have opened online accounts. A recent survey found that 18 percent of investors now buy stocks via the Web.

"It's the greatest thing that ever came down the pike," said Marcia Legg, 59, a retired nurse who recently put $128,000 of savings into an online trading account at Fidelity Investments.

Most Americans prefer mutual funds and broker-assisted trades. But with half of all U.S. households invested in stocks, and one in three equity trades made by individual investors through the Web, that is about to change: By 2003, some 41 percent of stock-owning households are expected to trade online.

As ordinary investors flock to the Internet, they are rapidly remaking the rules of Web investing, both for cyber-outposts and traditional, pinstriped brokerages.

With no branches and no human beings dispensing advice, online brokers make their money on how often clients trade stocks and on interest from loans to customers, who invest the borrowed money.

The business has flourished in a golden stock market. But with profits tied to trading volumes, Web-only brokerages are vulnerable to an economic downturn; Forrester predicts that 75 percent eventually will go bankrupt or be acquired.

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