Saturday, June 02, 2012

Two Facebook Followers Unite

Pioneers in social networking for traders, online brokers TradeKing and Zecco hook up to take on the establishment.

When they met in eighth grade, in the principal’s office, Don Montanaro and Michael Raneri didn’t know they’d be friends for decades, much less business partners. The latter part came true on May 15, when their online brokerages, TradeKing and Zecco, agreed to merge.

Montanaro’s TradeKing and Raneri’s Zecco were early adopters of Facebook-like social networking for traders. TradeKing (tradeking.com) runs the Trader Network, where users can share ideas; Zecco (zecco.com) has a similar community called ZeccoShare. The newly merged firm would have a combined client base of approximately 500,000 accounts with several billion dollars in client assets. Terms of the merger, including the combined group’s location and leadership, weren’t disclosed.

The plan is to unify the two entities under one brand and put the resulting firm on a single, best-of-both-worlds platform. The surviving brand, or possibly a new one, will be announced after the merger gets regulatory approval, which is expected in the next 30 to 60 days. The two firms already share a price point—both charge a low $4.95 commission on stock trades. Aside from low prices and social networking, TradeKing has focused on options and has a pretty rich educational site.

Montanaro, the co-founder and CEO of Florida-based TradeKing, was introduced to Raneri, now San Francisco-based Zecco’s CEO, by their middle-school principal shortly after Montanaro’s family moved to Connecticut. (No, they didn’t get in trouble together.) “We were best buddies all through high school, and Mike was my intro into Quick & Reilly after I finished law school,” Montanaro recalls. Quick & Reilly was an early discount broker and branched into online trading in the mid-1990s. “Mike had a 10-year run at Schwab after Q&R, so we’ve been colleagues and competitors for years. Now we’re partners at the right time to really be winners in this space.”

TradeKing’s original social component drew some skepticism from this column. The concept, however, appears to have caught on with a few million investors and traders on a variety of platforms, so it now looks like a great idea. Raneri and Montanaro think of the “Big Five” online brokers—Schwab, Fidelity, E*Trade, TD Ameritrade and Scottrade—as an oligopoly that is slow to respond to customer demands.

Montanaro says, “There’s a need for a nimble alternative that approaches customers with modern respect and embraces transparency. One that is willing to have a conversation in the open with its clients, asking, ‘What do you like, what don’t you like, and how can we get better?’ “

Apparently, the size of the two firms separately prevents them from being worthy competitors to the established oligopoly. “With this merger, we can stop being distracted by one another,” notes Montanaro.

Raneri expects to see “crowdsourcing,” or online discussions, among both firms’ clientele, to improve the experience for their merged customer base. “Social media and social networks made us stand out a little bit from the larger competitors. That transparency is going to help us here, so our customers can tell us what they like best about TradeKing and best about Zecco.”

When considering which pieces will be included on the merged platform, both agree that Zecco’s mobile apps are better than those offered by TradeKing. TradeKing’s options tools are a huge step above those on Zecco’s platform, plus TradeKing launched a bond platform that will be part of the merged unit. Zecco’s foreign-exchange capabilities will also be made available, though it will continue to involve a separate account and log-in.

Raneri says, “The combination will be the best of the best and very easily rival what the larger brokers offer in terms of technology. We plan to shine when it comes to customer service.”

Montanaro, reflecting on the time when they both worked for Quick & Reilly, recalls that their firm, though small, built a thriving business with superior customer service. In the early days of discount brokerages, there was a lot of overlap in product offerings and pricing, but Q&R’s trademark was service. “We’ve carried that forward with TradeKing,” Montanaro says, “That drives all of our decision-making and will continue to make a difference going forward.”

One former brokerage exec wonders what the combined firm’s new name will be, and hopes that the firm can come up with something new. “They will have to come up with a whole new name, in my opinion,” he says. “Zecco is a horrible name, and TradeKing is OK but not great. I am curious about the profitability and revenues of each firm as well as who is going to run the company—and where is it going to be located.”

A current competitor believes the merger will help because they were too small separately. But, he warns, saying they are going to challenge E*Trade “is crazy.”

In Barron’s online brokerage survey, we have consistently ranked TradeKing higher than Zecco over the years, mainly because the former’s options tools are superior. Zecco has come up with a number of plug-ins that keep its trading ticket ubiquitous, allowing customers to trade from any Website, including Facebook. Raneri says, “We’re the only broker that trades directly on Facebook right now.” Zecco runs a weekly contest on its Facebook page that rewards the winner with a $500 prize. One wonders whether that promotion will survive the merger.

WITH THIS SOCIAL-NETWORKING marriage set, the online brokerage industry is still recovering from the raucous debut of the king of all social media, Facebook. TD Ameritrade (tdameritrade.com) reports that 22% of all stock orders on May 18, the day of the initial public offering, involved Facebook. At TradeKing, 30% of the orders were for Facebook, and 90% of those were “Buy” orders.

Montanaro says, “We’ve never seen this concentration in one symbol on any day in our 6½-year history. We had lots of fresh new funds coming into accounts in recent weeks in anticipation of [the IPO], so we knew we had serious pent-up demand for the stock.”

The next challenge for the online brokerage industry is the start of options trading in Facebook stock, which is scheduled to begin May 29. Let’s hope the CBOE has less trouble initiating trading than Nasdaq did.

Posted by twcarey on 06/02 at 03:09 PM
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