Ad Campaign To Warn Online Traders - InformationWeek

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Ad Campaign To Warn Online Traders

The results of a nine-month investigation into online trading have prompted the New York state attorney general's office to launch a $500,000 consumer-education advertising campaign in conjunction with the securities industry.

The investigation was prompted by complaints from consumers who were having trouble with online brokerage firms in the first quarter of last year, says Scott Brown, spokesman for the attorney general's office.

"Online trading is growing rapidly and it's here to stay," says Brown. "We're just trying to lay some rules of the road for the industry and consumers."

As a result of the investigation, the Securities Industry Association, based in New York and Washington, D.C., will work with the attorney general's office to educate the public about online trading. The group is planning to spend roughly $500,000 on advertising to educate consumers on their rights and the realities of online stock trading.

The New York report did not name any of the seven online brokerage firms that were investigated, but it did outline several factors that contributed to the online-brokerage performance problems and investor dissatisfaction.

The attorney general's office identified a significant gap between the expectations of online-brokerage-firm customers and the reality of making trades online. Many novice online investors believe the trades are immediate and direct--not realizing they have to go through a series of mechanisms, all of which are subject to failure. The office says part of this gap has been fueled by aggressive advertising campaigns by online firms.

"We're calling for more truth in advertising, so that customers aren't led to believe that you click your mouse and the trade is executed instantly; clearly that's not the case," says Brown.

The report also cited deficiencies in the technology behind the trading. Infrastructure and software limitations were cited as problems for many firms. Essentially, the report says some sites were not able to handle traffic and transactions during peak periods of trading. As a result, the attorney general's office has recommended the industry institute some self-regulation that would require the public to be informed of the technology used on a site. Firms would disclose what they have done to upgrade their infrastructure and capacity to ensure customers that their site will be able to support peak traffic and future demand.

While no legal action has been taken, Brown warns that the state is ready to take action if necessary. "We have the power to sue firms for false advertising, but we're hopeful that it doesn't come to that," he says. "We're pretty confident that firms know that is still an option. We feel it's best for the firms and the customers for us to work together."

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