Online Brokers 2000: The Full-Service Firms Move In

There's nothing like a big infusion of new competition to prod companies to improve their games. That's what happened last summer when Wall Street giant Merrill Lynch (MER Quote) announced that it was jumping into the online broker business in an about-face from a year of disparaging the trend.

Merrill wasn't the first of the major full-service firms to get into online discount brokerage. Morgan Stanley Dean Witter(MWD Quote), through its discount unit Discover, as well as Prudential and PaineWebber(PWJ Quote) had online trading sites up and running before Merrill's. But Merrill's entry was a milestone in the industry's development. After all, up until the June announcement, the brokerage behemoth had been warning customers in an ad campaign not to trust the no-frills online brokers with their money. Merrill's capitulation signaled that the online brokerage business had arrived: It was more than just a net craze -- and was becoming something that every retail broker would have to offer.

So far, the old line brokers have not grabbed huge market share. During the fourth quarter, the top 10 online brokers still held 96% of the market, according to Salomon Smith Barney, a unit of Citicorp(C Quote). Merrill and Morgan Stanley Dean Witter only ranked in League B in TheStreet.com's Online Broker 2000 survey. That means that fewer than 312 of the more than 10,000 readers who participated identified these firms as their primary broker. (For complete results, see earlier stories .) ...