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PaineWebber Turns Up Its Nose at Low-Cost Online Trading

The brokerage firm won't follow Merrill Lynch into the chase for low-cost, online commission business.

While the whole retail brokerage world is promoting online trading, and instituting low-ball commissions,

PaineWebber

(PWJ)

retail chief Mark Sutton wants to talk about the firm's muni bond prowess.

If it sounds like PaineWebber is becoming Bizarro Brokerage Inc., that's not quite true. But going against conventional wisdom, the 7,000-broker firm won't follow

Merrill Lynch

(MER)

into the chase for low-cost, online commission business, Sutton says.

In response to the wave of investors trading through online brokerages, Merrill announced

Tuesday that it will offer clients a self-directed option in which they can trade online. Under one plan, the per-trade fee is just $29.95.

In a press briefing Thursday afternoon, Sutton and his right-hand man Marten Hoekstra said the firm will offer online trading to clients beginning in the third quarter, but only for those in fee-based accounts. Of the possibility of an online trading account with a low-price commission structure, Hoekstra says: "We have no plans to do that at this time. We are choosing not to compete on price.

"We're long-run indifferent" to whether the clerical aspect of a trade gets done at a wire clerk's desk, through a sales assistant, through a phone call with a broker or through an online mechanism, he added.

This stance is a gamble for PaineWebber, which has concentrated most of its business on retail brokerage and asset management while online brokerages have pushed further and further into the lives of individual investors.

While Sutton and Hoekstra referred to high-net-worth and affluent investors -- people they say want a broker's advice -- PaineWebber traditionally has been a mainstream retail shop and not a boutique operation such as the retail arms of the former

Morgan Stanley

, now

Morgan Stanley Dean Witter

(MWD)

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,

Goldman Sachs

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and

Donaldson Lufkin & Jenrette

(DLJ)

.

Prudential Securities

, the firm most resembling PaineWebber, has rolled out its PruAdvisor account, in which clients with $100,000 in assets can get online trading commissions of

$24.95 in addition to an advisory fee.

The PaineWebber pros say they will continue to push ahead with a financial planning, asset-gathering retail brokerage model, citing continued desire for advice.

In fact, one of the new accounts the firm is planning will give clients access to the PaineWebber Web site, a limited number of online trades, and a handful -- maybe one, maybe three -- of broker consultations for one set fee as exposure to a full-service relationship.

"There's a propensity to seek advice for the more assets you have," Sutton said. The firm has a online trading pilot program working in its Premier Asset Account, or PAA, which has a minimum balance set at a low $100,000.

That particular account is a move to pick up online brokerage clients who feel the need for the counsel of a broker.

Meantime, Sutton was talking about muni bonds because he said the product line, recently dropped by many major securities firms, is an important one to individual investors and the firm's commitment in that area is a reflection of its direction.

However, the chase for assets will likely include an acquisition of another retail brokerage operation or a asset management firm to complement the firm's

Mitchell Hutchins

unit, Sutton said, a position the firm has taken for at least the past 18 months. "We're actively seeking an acquisition."