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Dear Dagen: Merrill's Online Trading Move Intrigues Some, Repels Others

We survey the reaction and answer your questions about the new accounts.

Borscht.

People either love it or loathe it.

The reaction to

Merrill Lynch

(MER)

is about as divided.

On Monday, I

wrote about Merrill's conversion to online trading and received equal parts praise and criticism along with a torrent of questions.

First, a quick summary of Merrill's plan. The firm will offer two Internet trading options. One is a pretty typical online account that lets you trade for $29.95 per transaction. You'll also be able to buy bonds and mutual funds online and receive Merrill research. But you will not -- repeat not -- get advice from a broker. The minimum to open an account is $20,000.

If you want to trade online

and

use a broker, you will have to use the firm's other option, a one-fee, total-access account. For a minimum of $1,500 a year, you'll be able to trade commission-free via a broker, the phone or the Internet and also have access to a broker. There are other perks to this fee-based account, but these are the basics.

The fees break down as follows: For the first $1 million in the account, you'll pay 100 basis points (or 1%) annually on equity and mutual fund assets and 30 basis points (0.3%) on bonds and cash. For the next $4 million, you'll be charged 75 basis points for equities and funds and 25 basis for bonds and cash. For the next $5 million, the fees fall to 50 basis points for stocks and funds and 20 basis points for the bonds and cash.

Because the minimum charge is $1,500, if you have all equities and mutual funds in your account and your balance is below $150,000, your fees will be a higher percentage of your assets than specified above.

Some of you think this is a good deal. "I don't have an online account now, but I'll be getting one sometime this year. Of course I'd prefer Merrill for its stability and resources," writes reader

Matt McQueen

.

But Merrill's size and power are a turnoff for some readers. Merrill "may prosper online, but without me and probably hundreds of thousands of other Baby Boomers who hate them. Don't you hate going into an office with a $5,000 desk?" writes

William Van Brunt

.

TheStreet Recommends

Now on to your questions. Since

TheStreet.com's

office is so close to Merrill's World Financial Center headquarters, I walked over to the firm yesterday to get some answers.

When and Where

"I currently have a Merrill account. I was wondering what I need to do to get the $29.95 trading option. I meet the $20,000 minimum account requirement. My financial consultant at Merrill Lynch still hasn't explained this clearly to me," writes Bruce Haimowitz.

Merrill won't start offering this type of account until Dec. 1. At that point, you'll have to open one of these accounts and transfer some or all of your assets to it. But remember, if you move all of your assets into this account, you will not be able to get guidance from your broker. The minimum is $20,000, as you pointed out, but that is just the amount required to open the account. Once the account is open, your balance can fall below that level.

The one-fee, all-access account goes live on July 12. With this type of account, you will be able to use your broker and trade online if you like. Merrill will be rolling out a full marketing program shortly, so your broker should be up to speed before long.

Fund Fancy

"What about mutual funds? Will there be a large number of no-load funds? Or will it just be the load funds that Merrill loves?" asks Joel Williams.

With the $29.95 account, Merrill will indeed be offering access to load and no-load funds. The firm can't reveal the exact number, but you can expect something comparable to other brokerages' fund supermarkets. The charges should be revealed closer to launch.

A Platform to Rely On

"Given Merrill's inexperience with online trading, I'm wondering how long it will take before its Web interface is efficient and user-friendly and its servers provide responsive and reliable service. Other online brokers have had a painful learning curve to climb, so I'll wait and see before entertaining a switch," says Dick Bailey.

Until the trading site is up and running, the reliability question can't be answered completely. But Merrill is building the Internet trading system on its existing trading platform, used by its capital markets group and brokers. And this isn't Merrill's first foray into Internet trading. Earlier this year, the firm introduced online trading for two types of accounts, each of which have six-figure minimums.

The firm has some of the most robust technology on the Street, but the real test will be with the customers.

Let's Do the Math

"Do you think they will let you trade commission-free in the asset-based account if you only have a $5,000 in your account? I myself will gladly pay $1,500 for an unlimited account even if that's 30% of my assets," says Leslie Braden

.

Why on earth would you be willing to pay a 30% fee for commission-free trading? You will have to earn back that 30% in returns just to break even.

Go to one of the cheaper brokers with low account minimums instead. At

Datek

, with its $9.99 commissions, you'll get about 150 trades for your $1,500. If that is not enough, maybe you should go pro.

Given this account's 1% annual levy on equity and mutual fund assets and the $1,500 minimum, it makes sense to keep at least $150,000 in the account.

Why the high minimums? Merrill isn't looking for the hyperactive, low-end trader. And the firm will indeed be keeping an eye out for excessive trading.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.