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Online Brokers 2000: Reliability Ranks at Top of Customer Concerns

After recent site outages, many online brokers are working to provide better service.

For a few ugly hours in mid-February,

E*Trade

(EGRP)

customers experienced what every online investor fears: a crippled broker site. Lights out. No trades. No way to maneuver in the market.

In that

instance, the problem was caused by Web vandals. But it reinforced the notion that online brokers remain susceptible to outages. And it has kept that concern prominent in the minds of investors.

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In

TheStreet.com's

Online Broker Survey 2000

, reliability ranked at the top of investor concerns, scoring higher than getting the best or lowest commissions.

"Reliability is KEY!" wrote

Renato Prado

, one of the 2,000 readers who added comments to their ballots. "If you can't trade, nothing else matters."

The reliability lingers even though the brokers have taken measures to prevent service disruptions. The industry got religion after a big spike in Nasdaq volume in October 1997, triggered widespread outages. Since then, online brokers have invested in new technology to avoid the bad publicity -- and threats of litigation -- that accompany service disruptions.

"Reliability has vastly improved," wrote

Sam Burns

in his survey. "I think they learned their lessons, or at least hope they have!"

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The experts second that opinion. "What you're hearing now is that it's hard to get through on the telephone and no one is getting back to you on the email," said Dan Burke, an analyst who follows the industry for Gomez Advisors. "But you're not hearing that sites are going down that much."

Burke estimates that brokers spend in the excess of $100 per customers per year on technology. At

Charles Schwab

(SCH)

, with an estimated 3 million customers, that's a hefty $300 million investment.

Even so, sporadic outages still occur as online brokers race to keep up with increasing volume. In October, for instance, Schwab had three days of intermittent problems, including

one day when customers weren't able to trade for two hours. Again in February, the firm had

a day of intermittent access problems.

"Sites are still breaking a whole lot more often than they can if

online brokers want to catch the less techno-tolerant and mainstream investor," said James Punishill, an analyst with

Forrester Research

.

Keynote Systems

, which evaluates Web site performance, estimates that in the week of March 20 it took about 15.8 seconds to place a trade at the typical online broker. Keynote uses a T-1 connection to simulate trades at the various broker sites, but it doesn't actually buy the securities outright. So investors may not see the same results at home.

Of the

TSC

League A brokers,

DLJdirect

TST Recommends

(DIR)

took the top spot for reliability, scoring 18.79 out of 30. Among the League B players,

Dreyfus

ranked highest on reliability, with a score of 20.38. (League A brokers received more than 650 votes each. Our League B brokers received between 72 and 312 ballots.)

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Jeffrey Nachman, chief executive officer of

Dreyfus Brokerage Services

, a unit of Dreyfus, said the firm takes reliability seriously. "We experience problems every once in a while like everyone else," he said. "When we do experience a problem, money is not an object. We've upgraded the network, replaced physical connections, routers and the like. It's a preventive maintenance-type program."

Other brokers say they've done plenty of work, too. Stephen Scullen, an executive vice president with

Fidelity's

electronic business group, said his company's techies try head off outages by routinely looking for sites on their network with light workloads and shipping traffic here. Fidelity ranked second among the League A brokers.

Scullen said Fidelity's goal is to have enough capacity to handle three times the volume of its busiest day, which so far reached 500,000 transactions. "We've had 28 record-breaking days

recently, and we processed all the transactions successfully," Scullen said.

Schwab, the biggest online broker, which ranked fourth for reliability among the League A clan, says it tried to build its capacity to three to four times peak trading activity. In outages, its automated telephone order entry system, Telebroker, and its branch office system provide alternatives for clients. In addition, the firm will open a wireless channel in about six weeks.

A Schwab spokesman says that as Nasdaq was racing toward 5,000 on March 1, its computers didn't buckle under the strain when 70,000 customers placed simultaneous trades right at the market open.

Still, you don't have to search hard to find unhappy customers industrywide.

One online investor,

Sprague Theobald

, told

TSC

that he's been trying to close his account with DLJdirect for months, but hasn't because he has problems getting on to the site. "Recently they said that their site had been down for two days; this 'down' service has been going on for at least two months," he wrote. DLJdirect did not return calls seeking comment.

Carl Bauer Jr.

, who uses

E*Trade

,

(EGRP)

wrote that he's had a tough time getting onto the site to trade, plus he's gotten a busy signal when he called the toll-free number. "You have any carrier pigeons I can borrow?" E*Trade also was not available for comment.

Ameritrade

,

(AMTD) - Get Report

to reduce outage problems, spent more than $100 million in the past year to ensure that users can have access in times of high traffic, a spokeswoman said. But Ameritrade still only managed to place fifth among the League A brokers with a score of 14.38.

TD Waterhouse

(TWE)

brought up the rear in reliability among League A brokers, and it even ranked worse than all the League B brokers, with a 10.40 score.

The problems showed in the reader comments: "Slow, cumbersome and prone to timeouts from a dial-up connection," said one. "Waterhouse Web site gets frightfully slow during heavy volume times," said another reader. A third chimed in: "Waterhouse is very unreliable and is always busy." TD Waterhouse was not available for comment.

Amy Olmstead contributed to this report.

Informative provided the technology to conduct this survey.