Focus on Reliability

Online brokers might not be a rock of reliability, but at least their customers are starting to feel like they're on more solid ground.

Online traders call reliability the most important feature they consider when choosing an online broker. "The top three elements I look for in an online broker are reliability, reliability and reliability," wrote Glen Bowman in his survey. "Commissions, charts and a cool Web site mean nothing if you cannot access the system when your own trading system dictates that it is time to trade."

Overall, respondents find that reliability has improved in the past six months. The average reliability score was 3.7 in this survey, compared with 3.1 in our first survey. And the top eight most-used brokers each showed substantial gains, with Donaldson Lufkin & Jenrette's (DLJ Quote) DLJdirect winning the category with a score of 4.1 and Ameritrade (AMTD Quote) finishing on the bottom with a score of 2.7.

Reliability The service is reliable; I can access my account and trade even during heavy-volume times. (1=strongly disagree, 5=strongly agree) Rank Firm Score 1 DLJdirect 4.1 2 Fidelity 3.9 3 E*Trade 3.8 3 Schwab 3.8 4 Discover 3.6 5 Datek 3.5 6 Waterhouse 3.4 7 Ameritrade 2.7 Total Survey Average 3.7

Most brokers have worked hard since their flaky performance on Oct. 27, 1997, upgrading and sometimes overhauling systems, adding capacity and installing redundant systems. As problems persist, volume swells and customers grow more demanding, the tweaking continues.

"I think the biggest improvement we've made is the direct focus on capacity and availability," says Martha Deevy, senior vice president of electronic brokerage at Charles Schwab (SCH Quote). And Stephen Killeen, senior vice president of interactive services at Fidelity, says reliability remains top priority: "Every time we talk to our customers, the No. 1 thing they want is access to the site." To which customers might respond, well, it's hard to trade online without it.

While online brokers still aren't as reliable as many technology-enabled financial-services providers, the extent of improvements made over the spring and summer likely won't be repeated anytime soon. Going forward, analysts and companies say, gains will be more incremental.

"We're continuing to fine-tune the system," says Blake Darcy, chief executive of DLJdirect. The broker has boosted capacity, added backup connections and increased redundancy. And part of the reason for DLJdirect's strong reliability is that in addition to trading through the site and software, it has a proprietary interface with both America Online (AOL Quote) and Prodigy. Having various channels -- the AOL and Prodigy sites have direct lines to DLJdirect -- helps the broker balance volume.

The general improvement in reliability masks a wide range of experiences with downtime. Some 53% of respondents said they were unable to access their online brokers to trade or check their accounts "rarely or never." In other words, about half said they encountered almost no reliability problems. But the other half wasn't so lucky.

Overall, 22% of respondents suffer through reliability trouble once a week or more. Anyone following this market knows a lot can happen in 30 minutes, but 18% said the access problems they endured lasted longer than a half-hour. And 45% said the typical downtime lasted 30 minutes or less.

Of the big brokers, about 60% of traders at Schwab, E*Trade (EGRP Quote) and DLJdirect and 67% at Fidelity said they encounter problems rarely or never. In contrast, only 31% of Ameritrade respondents said they suffered rarely or never. Datek had the highest proportion, 9%, of respondents saying they encountered access problems once a day or more. Schwab, with 2%, had the lowest. (We'll look at how reliable some of the smaller brokers are on Friday.)

Of the eight most-used brokers, Ameritrade had the highest proportion of respondents, 17%, citing access problems of an hour or more. While Datek didn't do that well on reliability, about 43% of its respondents said their access problems lasted only 10 minutes or less.

E*Trade is one of the firms that created a new technology platform, designed to quickly bypass parts of the system that are malfunctioning. "It comes down to reliability and speed," says Debra Chrapaty, president and chief operating officer of E*Trade Technologies. "We always strive for technological excellence. We've had a great quarter in terms of reliability."

Reader James Durpree agrees. "E*Trade has come a long way in reliability. Access problems have diminished greatly and the few problems that do exist may not be of their origin."

Ameritrade is trying to dig itself out from its own reliability problems. "We've spent well over $10 million on systems equipment," says Michael Anderson, president of Ameritrade's online brokerage. Ameritrade has hired a consulting firm to advise on capacity and infrastructure improvement and, in September, completed a major hardware upgrade that it says solved a longstanding software problem.

Waterhouse, a unit of Toronto-Dominion Bank (TD Quote), says it will make a systems change in the next few weeks that will correct some of the problems certain customers are having. But the firm says its systems are holding up well under the recent heavy volumes.

Datek isn't sure a whole lot of improvement can come regarding problems around the open, a time when respondents say it has reliability trouble. Datek is working on technology improvements to deal with volume and order routing. But part of the problem around the open is a lack of liquidity in particular stocks or a piling up of orders that can temporarily swamp market makers or specialists on the floor of the exchange.

Access problems are not always the brokers' fault. Slow modems can aggravate access time. Sometimes Internet-service providers or the Internet backbone are at fault. However, the online brokers are the most important link in the chain. And that link still needs a lot of strengthening.

The technical side of this online brokers survey was conducted by , October 1998.