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Appended below is the text of a report from TheStreet.com today on Datek.
Sorry it is so long but it seems relevant to the past discussion.
This is part of the results of a survey customers on internet brokers.
Links to the total survey are at:
http://www.thestreet.com/premium/Companies/trading/28156_5131998.html
Bob Fulks
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Online Trading: Datek Hits the Top of the Heap, Ameritrade
Brings Up the Bottom
By Erle Norton
Senior News Editor
5/13/98 9:40 AM ET
Datek's origins lie with day traders, people who demand reliability, cheap
commissions and the best possible execution price. These are also the most
important factors TheStreet.com readers look for in choosing an online
broker. It seems only natural then that Datek would come out on top of
TSC's online broker survey of more than 3,000 readers.
The Iselin, N.J.-based online broker scored an overall 3.5 out of a
possible five thanks to strong showings in reliability, commission rates
and execution prices. Our overall rankings take into account these three
areas as well as ease of use and customer support. Together, the five were
the factors readers identified as the most important in choosing an online
broker. They were weighted based on the percentage of readers deeming them
most important. (For more on the methodology, see our story detailing it.)
BEST BROKERS
Overall scores are weighted as follows:
41% Reliability, 21% Commissions,
20% Execution, 10% Ease of Use, 8% Good Customer Support
RANK FIRM TOTAL
1 Datek 3.5
2 Discover Direct 3.4
2 DLJdirect 3.4
2 Fidelity 3.4
3 E*Trade 3.3
3 Waterhouse 3.3
4 Schwab 3.2
5 Ameritrade 3.0
Tied for second were Discover Brokerage Direct, DLJdirect and Fidelity, all
with 3.4 scores. E*Trade and Waterhouse tied for third with scores of 3.3.
Charles Schwab came in next to last with a 3.2 score. Ameritrade followed
with a 3.0.
But before any online broker breaks out the champagne, it's worth noting
that none of the firms reached scores of four, much less five. Readers'
responses clearly demonstrated that plenty of work remains for the
still-young industry, especially when it comes to reliability, the most
important factor in choosing a broker for readers. (Please see our separate
story on how the firms fared in the individual categories.)
Datek, started in 1996, has long stressed the issues TSC readers care about
most. It pulled in the best score for commissions, with a 4.1, as well it
should: Datek has one of the lowest per-trade prices in the industry, at
$9.99. For reliability, which emerged from the survey as by far the most
important factor for readers, Datek scored 3.3, putting it right behind
leader DLJdirect. This is not too surprising, considering that Datek's
strength is its technological sophistication.
With execution, Datek garnered a 3.4, also the highest score. Here's the
company's position on executions from its Web site: "Datek's electronic
order processing capabilities allow its customers the fastest possible
executions and confirmations. The typical marketable order is processed in
less than 10 seconds, but if a marketable order takes longer than 60
seconds, the trade is commission-free."
All of this led to comments like this on the survey from Will Trautwein of
Baltimore: "I am so pleased with Datek. It's incredible."
Datek does have its drawbacks, however. For one thing, customers can't use
it to trade options, a major problem for many serious traders and 31% of
the TSC readers surveyed. For another, Datek received a low score for
customer service compared to its peers. It received a 2.9 score, well below
leader Fidelity, at 3.9, and also below the crucial 3.0 mark, the middle
ground between a positive and negative score on the one-to-five scale.
Then there are questions about its past. Just this past Sunday, The New
York Times reported at length about what it called Datek's "record of
aggressive, and sometimes illegal, trading activity; of fines, censures and
suspensions, and of shadowy deals involving offshore accounts."
The Times added, "And not all of Datek's problems are history. SEC
officials are investigating whether Datek was part of a stock manipulation
scheme in recent years involving the sale of securities to overseas
investors, according to investigators, law enforcement officials and a
person supboenaed in the case. The office of the Manhattan District
Attorney, meanwhile, says it is looking into whether Datek participated in
a money laundering scheme."
All of this has some Datek customers understandably worried. One TSC reader
wrote, "I'm currently a subscriber to Datek Online, and I'm quite worried
about the safety of my stock holdings. Should I consider switching to
another online trading service?"
Datek, in what it said would be its sole statement on the issue, noted that
the Times said Datek Online Holdings Chief Executive Jeffrey Citron has
"tightened management controls, outlawed many trading practices, hired a
major accounting firm and recently completed a spin-off of the firm's
trading unit, the center of most of the questioned practices."
Datek went on to say that it has "added several new members to its
management team, including a new chief financial officer, chief compliance
officer and vice president of customer support."
In short, Datek is trying to distance itself from its past and its troubled
day-trading operation, where participants traded for their own accounts and
others' accounts, in part to eventually take the online brokerage public.
"The best thing that comes out of this for Datek is that they very
concretely separate themselves from that business," says Bill Burnham, a
senior analyst who follows online brokers at Piper Jaffray. "That's what
it's going to take to get everybody comfortable."
For the online customer, however, Burnham says there's little reason to
worry. The problems were "all on the day-trading side," he says. "I don't
think [online] customers have to worry at all about it." He adds: "The
online trading operation is legitimately completing trades."
In addition, Citron didn't head the troubled day-trading unit, Burnham notes.
Also, a review of Datek's disciplinary history on file with NASD Regulation
lists two matters initiated since 1996, when Datek Online started. Datek,
through a spokeswoman, says neither matter concerned the online brokerage.
There are no pending or past actions from any government or other agency
against the online brokerage operation of Datek, the spokeswoman said.
At the bottom of the pack, Ameritrade suffered largely because it scored so
poorly on reliability -- 2.4. Ameritrade has pursued an aggressive growth
strategy, signing up 124,000 new accounts in the past two quarters thanks
to massive spending on advertising. But the huge account growth has left
the company struggling to keep up with its technology, which has resulted
in plenty of unhappy customers.
The company is working to rectify the problems. Ameritrade has launched a
new site, added new software, increased capacity and upgraded order
processing and routing within the system. "Management believes it's prudent
to maintain our aggressive posture and continue efforts to capture market
share. However, we must also focus on building our infrastructure in
conjunction with our expansion," Joe Ricketts, Ameritrade's chairman, said
in a recent statement.
Ameritrade did well on commissions, with a 4.2, but didn't do as well with
execution price, 2.9, and ease of use, 3.2. As for customer service, it had
the lowest score of the bunch, with a 2.6.
One final note on methodology. We also asked readers to respond to this:
"Overall, my experience has been excellent." DLJdirect and Fidelity scored
best, with Datek in the middle and Ameritrade at the end. While helpful, we
consider responses to that question less telling than the rankings that
emerge from our weighting of the five factors.
Here's why: The weighted overall ranking begins with the criteria that TSC
readers told us are most important to them. It then extracts specific
information about the criteria from users of the various brokerages. What
results is a definitive ranking based on five articulated factors. In
contrast, the overall satisfaction rating is more of a general gut check
that does not explore the specific reasons why the users of a particular
service are satisfied or unsatisfied.
OVERALL SATISFACTION
Overall, my experience has been excellent.
(1=strongly disagree, 5=strongly agree)
RANK FIRM TOTAL
1 DLJdirect 3.7
1 Fidelity 3.7
2 Discover Direct 3.6
2 Schwab 3.6
3 Datek 3.5
4 E*Trade 3.4
4 Waterhouse 3.4
5 Ameritrade 2.7
TOTAL SURVEY AVERAGE 3.4
The Rest of the Package
The Overview
Net Investors Call Reliability No. 1 Concern in Exclusive TSC Online
Brokers Survey
The Survey Results About TSC Readers
TSC Readers Reveal a Bit About Themselves
The Methodology
How We Sliced and Diced Data from More Than 3,000 Readers
Five-Category Breakdown
How the Big Brokers Fare on What Matters Most to TSC Readers
Focus on Reliability
TSC Readers to Brokers: Just Give Me a Site That Works!
Breaking into the Biz
Does the World Need 70 Online Brokers?
The Survey
Take a Peek at the Survey Readers Completed
We welcome your comments and suggestions for future surveys.
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