Success Of Online Brokerages Hinges On Customer Service

Competitive pressures are spurring online brokerage firms to focus on their customer-service efforts as they fight to attract and retain customers, according to two studies released Monday by Keynote Systems Inc., an Internet performance-measurement firm.

E-Trade, Fidelity Investments, and Ameritrade had the highest success rates in converting prospects into customers, according to the Customer Experience Rankings study. E-Trade earned high marks for intuitive Web-site navigation, product categorization, and account descriptions. Fidelity, E-Trade, and HarrisDirect scored highest in customer satisfaction: Consumers on these sites were more satisfied, experienced less frustration, and found the sites easiest to use.

The study examined 1,500 prospective online investors as they interacted with 10 leading brokerage sites, and captured more than 250 behavioral and attitudinal data points for each site. Consumers were asked about their online experience in such areas as managing investments, available investment choices, finding an investment account that met their needs, learning how to open and fund an investment account, and the account-opening process.

Keynote evaluated the Web sites of Ameritrade, E-Trade, Fidelity, HarrisDirect, Merrill Lynch Direct, Schwab, Scottrade, ShareBuilder, SiebertNet, and TD Waterhouse.

A second study, the Service Level Rankings study, examined those 10 sites, plus an additional four: BrownCo, Firstrade, T. Rowe Price, and Wells Fargo. Among the 14 sites, Ameritrade, Charles Schwab, and Scottrade ranked highest in overall service.

The Service Level Rankings results were obtained by installing "transaction perspective" agents on PCs in 10 major cities. The agents performed the process of applying for a basic brokerage account and collecting more than 6,000 detailed measurements on each site. Transactions were run hourly by each of the 10 agents. Data was collected from March 26 through April 22.

Keynote didn't say which online brokerages scored lowest in either study. But it did disclose some of their weaknesses. On the Service Level side, one site in the study reported more than 20 hours of downtime during the examined month, and had average page download times more than twice the industry average, a performance that is unacceptably poor in the demanding brokerage environment.

On the Customer Experience side, the top frustration for prospective investors evaluating brokerage sites was when poor online demos were presented " or when no demo was available at all. Almost a third (29%) of all prospective investors in the study complained about that issue. And poorly performing online brokerage sites generate an average of 5.7 "frustrations" per person.

The online brokerage industry is consolidating in the face of declining commission revenue. TD Bank Financial Group and Ameritrade have held discussions regarding a potential transaction involving TD Waterhouse USA, the U.S. operations of the bank's wealth-management subsidiary. The companies said they would have no further comment until an agreement is reached. Last year, E-Trade held similar talks with TD Bank, but a deal wasn't reached.