E-Trade Builds an Army of Advisers

May 11 2000

Now that online brokers have succeeded in turning the model for stock investment on its head, they're trying a new trick: turning their own business models upside down.

E-Trade Group, the leading pure-play brokerage on the Internet, will add personal financial advisers to its roster of services later this year, says E-Trade CEO Christos Cotsakos. And the advisers will make house calls to E-Trade customers anywhere in the U.S. - an unprecedented personal touch among online brokerage firms.

Taking a page from the business models of its brick-and-mortar competitors like Charles Schwab, TD Waterhouse Group and Fidelity, E-Trade will offer its customers access to certified financial advisers for money-management advice and portfolio evaluation. In addition to house calls, advisers will be available via telephone, online chats and e-mail.

Just as venerable banks such as Merrill Lynch and Morgan Stanley Dean Witter have begrudgingly embraced the Internet, online brokers are beginning to abandon their all-electronic financial-services model. As a result, both extremes are seeking a balance.

"Electronic advice is great, but some people just want to talk to somebody," says Cotsakos. "Access points to customers are unlimited. We know we have to have all the touch points available, and if that means you want someone to come to your house, then we'll be able to send a trusted financial adviser there."

For years, E-Trade executives preached the electronic gospel, a strategy that helped build its success. In 1997, the company backed away from rock-bottom commissions in favor of more stock analysis and features, all of which were handled electronically. Today, E-Trade's customers trade online more actively than customers at Fidelity and TD Waterhouse. And most of their money is deposited electronically, as well: E-Trade only accepts physical deposits in the lobby of its headquarters, based in Menlo Park, Calif.

Increasingly, the emphasis on digital is getting weak. E-Trade bought a network of 8,500 ATMs earlier this year, which created a nationwide physical presence for the company for the first time. This fall, E-Trade plans to open a storefront on Madison Avenue where customers can make deposits, trade online and chat about the market over coffee with other investors. The company plans to open another 14 stores in major metropolitan areas around the world.

Cotsakos wouldn't give details on its network of financial advisers but says the service will be available within six months - either through a partnership with an existing network or by developing its own. Setting it up won't be cheap. It's taken Charles Schwab 13 years and a substantial amount of money to build and maintain its network of advisers, though not without some payoff. A Schwab spokesman estimates that 30 percent of its total assets are under management by advisers.

"I've been hoping this was something [E-Trade] would do for a long time," says Scott Appleby, research analyst for Robertson Stephens . "All the demographics point to having a profitable financial-adviser business. The creation of wealth and transfer of wealth that we've seen in recent years is only going to continue for the next 20."

It is unlikely that this will be Cotsakos' last step to take E-Trade away from the purely electronic model of its early days. Ultimately, he said, E-Trade will service its investors' needs, from the novice individual to the institutional trader, through any channel, any time of day, from anywhere in the world.

"I want it all," Cotsakos says. Then he holds out his hand. "I don't want any sand slipping through these fingers."