Lost in Translation

THE HORROR, THE HORROR.

The conversion of accounts from Harrisdirect to E*Trade, which took place between Jan. 10 and 13, turned into a disaster. As noted here last year ("Lowering the Velvet Rope,” Aug. 15.), E*Trade Group benefited in this deal by getting the affluent clients of Harrisdirect. Those folks apparently have made out less well.

Our Electronic Investor e-mail account swelled with reports from unhappy former Harrisdirect clients, telling us of problems logging in, disappearing cash, positions reported incorrectly and hours on the phone waiting on hold after the changeover.

Jarrett Lilien, president and chief operating officer of E*Trade Group (ticker: ET), told us customers with multiple accounts linked to a single log-in had been sent materials telling them how to update their passwords. That system hit what Lilien called “a roadblock” and ran very slowly, which made customers think that their accounts were no longer available or had been lost. These customers called the E*Trade support lines for help.

The conversion also involved changing clearing firms, from Pershing to E*Trade’s own system. This required E*Trade to run both systems concurrently for three days while the data were moved over.

E*Trade had hired several third-party firms to manage some of the data conversions, and although tests prior to the conversion worked fine, on the actual date they failed. The affected customers, who thought that positions had gone missing, also called the support lines for help.

Another problem arose when the cash held in Harris accounts was moved to E*Trade. Owing to the difference in database technology, the cash was logged as transactions, which could trigger backup withholding for tax purposes. The third-party vendor hired by E*Trade had turned off tax withholding for those transactions, but apparently turned it back on prematurely.

As a result, numerous customers got a shock when they looked at their balances, thinking that a chunk of cash had disappeared. This error was fixed within a few hours, but in the meantime, affected customers flooded the E*Trade support lines to find out what had happened.

E*Trade had doubled its support staff for the week, but the series of problems generated seven times the usual number of calls. That created a huge backlog and a lot of unhappy new customers. Says Lilien: “We’re secure, the money is still there, but we didn’t handle the conversion right.”

On Jan. 15, the customers transferred from Harris received an e-mail from E*Trade that said: “Although the majority of Harrisdirect customers have migrated to E*Trade smoothly, there were customers who experienced significant frustration. To those customers, we apologize sincerely.” The e-mail said the problems that erupted during the conversion have been addressed and corrected, with the exception of the long hold times on the phone.

To make up for the inconveniences, former Harrisdirect customers will be given credit for up to five stock or option transactions that they execute between Jan. 17 and Feb. 16. We shall see whether a $65 discount in commission costs will keep these customers on board.

E*Trade’s intention in acquiring Harrisdirect, as well as BrownCo, is to be viewed as a financial partner for those with high-account balances. The firm has added Credit Suisse First Boston research for those with over $100,000 in assets, and is building out an advanced aggregator for research for those customers.

On Jan. 17, E*Trade announced that customers would be protected from online fraud via the firm’s Complete Protection Guarantee, which provides fraud coverage, bill-payment protection and privacy protection. Surveys show that customers believe that their home PCs are safe, when in fact they may be lacking some key protection.

E*Trade has enabled two-factor authentication for those who want it, which means requesting a key fob that generates a random number that the user types in to log into an account—an approach that’s used with many corporate networks. The Complete Protection Guarantee is an extension of banking protections, already in place, to the brokerage side of the business.

If you have a Brown account, should you worry about the conversion? E*Trade’s Lilien says that the Brown conversion should go considerably more smoothly because both brokerage firms already run the same computer systems. We’ll see. The switchover is scheduled for some time in the first quarter.

Posted by on 01/23 at 05:43 PM

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