Monday, February 06, 2006

Conversion Trouble Part 2

WHEN WE QUERY READERS each year about what they want in a broker, we typically get 100 or so thoughtful e-mails on the subject over the course of a few weeks. This year, we’ve already heard from several hundred of you on a combination of subjects: problems with the Harrisdirect conversion; the fears of BrownCo customers as they face their upcoming conversion; and wish lists of what Barron’s readers want from their online brokers.

Following our report two weeks ago about the problems E*Trade has had assimilating the Harrisdirect customers, our mailbox filled with new complaints, revealing new issues. Sitting on hold while waiting to talk to someone in customer service remains a major complaint, but another repeated by numerous correspondents involves the rates E*Trade pays for cash balances.

One reader reported that the rate he was getting for cash was one-quarter of what Harris had been paying, and was well below 1% annually. An official at E*Trade told us that Harrisdirect customers were mapped into various FDIC-insured or SIPC-covered products based on the cash balances held in their accounts. Customers were notified of the products they were mapped in December, and were also told they could change their sweep options at any time after they had been converted. With a sweep account, the brokerage makes short-term investments with idle balances.

Harrisdirect customers were also informed in their transition letters that they had additional options, and could change their default-account options after the conversion. For legal reasons, however, E*Trade could not automatically do this for them.

There’s a tool on the E*Trade brokerage site that advises customers where to put their cash, depending on the yield they’d like to achieve. But the customers have to take some action themselves and make the change. It’s not automatic.

Perhaps much of this communication got lost amid the holiday cards in December, as the cash-account conversion appears to have come as a surprise to quite a few Harris customers. One reader reported receiving two or three letters from E*Trade every week, and ignoring many of them since the first several missives were soliciting mortgage business. He now suspects some of the letters he tossed as junk probably contained important account-conversion information—but all the envelopes, even the ads for additional services, had the same printing on the outside.

Given the number of Barron’s readers who were taken by surprise by certain aspects of the Harris to E*Trade conversion, it appears that quite a few important messages got tossed in the rubbish because they looked like ads. BrownCo customers, don’t make the same mistake. And, everybody, keep those e-mails coming about your experiences and preferences regarding online brokers.

SPEAKING OF BROKERAGE integrations, Ameritrade (http://www.ameritrade.com) and TD Waterhouse (http://www.tdwaterhouse.com) closed their consolidation deal Jan. 25. The company is now called TD Ameritrade Holding and its shares trade under Ameritrade’s ticker symbol, AMTD.

Online-brokerage customers won’t notice any changes for several months. Although the takeover is complete from a financial standpoint, the two brokerages will continue to operate as separate entities through 2006. Katrina Becker, TD Ameritrade’s director of communications, says that the integration will take about 12 months. In the meantime, TD Waterhouse continues to solicit new customers. We will review the offerings separately in our online-broker review, even though the TD Waterhouse site will no longer exist in the 2007 review.

“Ameritrade will be the platform you’ll see once the consolidation is completed. We will begin integrating key tools from the TD Waterhouse platform later this year, and plan to complete the back-end conversion in 12 months,” Becker says. This process mirrors the Datek conversion, which significantly improved Ameritrade’s offerings for active traders.

TAX TIME IS COMING. From time to time, we are asked complicated questions about how to calculate the tax basis of a particular holding when there are takeovers, spinoffs, stock splits and reinvested dividends. Some of these actions can be very difficult to track down.

GainsKeeper, which a number of online brokers have adopted to help their customers track the tax consequences of their trades, just introduced BasisPro Cost Basis Analyzer, which can be used to generate the correct cost basis quickly. BasisPro uses a database of historical information for thousands of different securities to generate the correct cost basis.

BasisPro can be accessed directly through BasisPro’s Web interface (http://www.gkis.net/basispro), or via the Web portal of a retail broker-dealer that offers BasisPro to its clients. If a cost-basis inquiry is made that the BasisPro database can’t answer, GainsKeeper’s product-support staff will provide the requested cost-basis information for that specific security within 48 hours and update the BasisPro database accordingly.

More brokers are jumping on the GainsKeeper bandwagon. We expect several announcements shortly.

Posted by twcarey on 02/06 at 05:46 PM
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