As online brokers have emerged into this world, the question perplexing industry pundits has been: Will these upstarts replace full-service brokers, or are they tapping a new clientele the stock salesman is glad to forgo?
online brokers survey says: The latter -- online traders are small fry, or at least their online trades are.
Of the 3,303 respondents who told us their average trade size, about 35% said it was less than $5,000. Another 30% put it at $5,000 to $9,999. The remaining 35% put it at $10,000 or more, with only about 2% of respondents logging in above $100,000.
It could be that these small fry are really big players who just trade online with their full-service brokers' play money. But the demographic data we collected didn't exactly nail that two-tiered theory. Only 27% of all readers said they also use a full-service broker. Break that figure down across trading size, and the littlest fellows had the lowest percentage of full-service use, about 23%, while 34% of the biggest players had a full-service broker. So less than a quarter of the small traders have a full-service outlet.
It gets even more interesting when you see who's getting what big trading business there is.
was the most-used broker in our survey, with about 19% of our survey's market share. But for respondents whose average trade is more than $100,000, this self-styled "full-service" discount broker commanded 30% of the market.
On the low end -- the under-$5,000 crowd --
, a unit of
So what gives? Probably commissions. The small traders, in fact, dubbed commissions their No. 1 concern in choosing a broker after reliability. Commissions were more important to small traders than to any other group measured by trading size.
It's understandable: When you don't have all that much money in play, you're more sensitive to how much you'll give away just to get into the game. Indeed, it's online brokers' lower commissions that have helped make trading an affordable endeavor for many smaller players.
Of any trading group, the big traders, $50,000 per average trade and up, cared the least about commissions. But when it came to execution prices, they cared the most. And good execution prices are something full-service brokers flaunt as a strength.
So the survey identified some lines in the sand between the online and full-service markets. But sand can shift. As online firms continue to expand services like IPO access, institutional research and a staff dedicated to high-end customers, now-wary full-service stalwarts may become more receptive to leaving the nest. Firms like
, a unit of
Donaldson Lufkin & Jenrette
and E*Trade are already beefing up their wares. "It will get a lot tougher for the full-service firms," says analyst Bill Burnham at
Credit Suisse First Boston
Among other intriguing trends in our demographic data was market share. While Schwab held the lead, its standing as
readers' primary broker dipped slightly since April, from 20.5% to 18.9%. Meanwhile, Waterhouse inched up a bit while E*Trade slipped a little. Among other significant ground gainers were
, a subsidiary of
Quick & Reilly
, which is owned by
Brown & Co.
, a subsidiary of
, both of which boosted their percentages by almost double, to 3.1% and 2.4%, respectively.
As for the readership breakdown among long-term investors, active investors and day traders, long-term investors picked up some ground since April -- seven percentage points -- while the percentage of those calling themselves active investors and day traders decreased slightly.
Nearly 98% of survey respondents say they trade stocks, while about 34% also trade mutual funds, and 32% trade options.
Sounds fine, except not all online brokers offer options trading -- our top-ranked Datek is a lead example. Which just goes to show, for now at least, the full-service folks have their place.
Staff Reporter Amy Olmstead contributed to this story.
The technical side of this online brokers survey was conducted by
, October 1998.