RealTime IT News

Broker Boosts Its Trading Arsenal Despite Sanctions

E*TRADE Group Inc. took a step to salavge its tarnished reputation Thursday when it extended its hand to the top-tier niche of online investors by purchasing PrivateAccounts.com for an undisclosed sum.

E*TRADE chose the privately-held firm because it fit in with its strategy for attracting consumers who have a minimum of $100,000 to invest, independent financial advisors and corporate clients. PrivateAccounts' small claim to fame is its regular leveraging of professional money managers to help clients meet their financial goals.

After the acquisition is assimilated, E*TRADE will be able to simplify the process through which consumers have traditionally obtained personal financial advice and planning tools. Rather than having to rely on a broker or investment advisor to choose an appropriate money manager, E*TRADE customers may choose their own money managers and monitor their performance on a daily basis.

E*TRADE customers may also experience tax benefits with separately managed accounts because the money managers can buy and sell securities to maximize the after-tax returns of their customers.

Amy Errett, chief asset gathering officer, E*TRADE Group, said direct access to professional money managers will help new clients stay ahead on the trading curve, as well as help E*TRADE, which has recently been fined by the National Association of Securities Dealers, retain valued clients.

"Prior to this offering, such access was reserved for institutional investors and individuals with over $1 million," Errett said. "We will be providing our customers with the flexibility associated with separate accounts, as well as access to electronic advice, the ability to create personal portfolios of securities and tax-deferred college savings products."

On Tuesday, the NASD said it fined the online broker $20,000 for failing to report its short interest positions for more than two years. The penalty was the second time in the last four months NASD has fined E*Trade Securities, which was censured and fined $20,000 in May for failing to respond to requests for information related to customer complaints.

Last August, E*Trade was ordered to pay a customer more than $61,000 plus interest and costs as a result of a mishandled order.

Still, despite the purchase, a negative shadow was cast on the No. 2 Internet broker last week when it reported that regulators have been investigating the firm's marketing practices, forcing it to get advance approval of all advertising materials. This comes after a year in which the government and rivals have criticized the company repeatedly for implying that online traders quickly strike it rich.

Marc Pollina, program manager for online financial strategy at the Yankee Group, said the purchase was a home run for E*TRADE, who is second only to Schwab with three million online accounts.

"This plays in E*TRADE's strategy perfectly, Pollina said. "There are two stages going on here in online trading. In stage 1, we saw the risk tolerant investor. Now, in stage 2, we have the risk averse investor and that's serious money. We're talking over 75 million baby boomers here."

"Also, there is a very key difference that E*TRADE will be able to capitalize on," Pollina continued. "When you deal with a money manager offline you have the broker choose one for you, and there is a fee. What E*TRADE is allowing is you to pick your own money manager -- privately. The trader has direct contact with the manager, which will lead to interaction."

As for whether or not E*TRADE's financial missteps will affect the firm's image, Pollina remains doubtful.

"I think a lot of that is over the top," he said. "There is a convergence going and, while Schwab may have set the standard for harmonizing onl