WHO says you need to call your broker to buy or sell stock? Charles Schwab & Co., the nation's largest discount brokerage service, is now offering its customers access to an automated stock trading system called The TeleBroker.
Customers in San Francisco, New York, Chicago, and Washington, D.C., simply dial on a telephone their special access number and enter their account number. Then, using automated commands, they can buy or sell specific stocks, get market quotes and other up-to-date financial information, create a new personal identification number for purposes of privacy, and even talk to a sales representative.
In other words, the customer can undertake all the normal duties required in executing a stock transaction without having any direct contact with a broker at all. The customer not only saves up to 10 percent off Schwab's regular discounted rate - thus earning a discount on a discount - but enjoys maximum privacy on his or her transactions.
Schwab's new automated telephone service is just the latest initiative by discount brokerage services to lure back investors frightened away by market downturns in 1987 and late 1989.
``We designed the system so that it would be somewhat similar to a bank's ATM [automated teller machine] system,'' says Elizabeth Wilcox, senior product manager with Schwab's home office in San Francisco. Eventually, she says, the system will be extended to the 110 or so Schwab branch offices around the US.
Over the years discount brokers have increasingly pulled individual investors away from the major full-service investment houses. By going through a discount broker, an investor can typically save between 20 percent and 70 percent on commission charges. Discount brokers, experts note, are usually considered agents who execute trades, rather than investment advisers, as is the case with most investment houses.
Discount houses have flourished during the 1980s. Still, like almost all financial firms geared to the general public, they saw a major erosion of business following the market crash in October 1987. Volume fell off sharply in early- to mid-1988, as some discounters were forced out of business or were swallowed up in mergers and takeovers. Even the biggest discounters, like Schwab, saw a decline in volume.
But in recent months, volume has picked up, as smaller investors have gradually returned to the market. Moreover, many investors have fled to the discounters in protest against increases in commission charges posted by many of the financially pinched full-service firms.
Today, three companies dominate the discount business: Schwab, Fidelity Brokerage Services, and Quick & Reilly. Together, they constitute 70 percent of the discount business. In addition, there are smaller discounters around the US who offer a slightly reduced range of services.
Financial analysts have been suggesting caution regarding purchase of the stocks of publicly held discount brokerage houses, in part reflecting the hesitancy of individual investors to fully recommit themselves to the market. Michael Blumstein, an analyst with First Boston Corporation, currently recommends Schwab, but advises a ``hold'' on Quick & Reilly shares.
For all their increasing public acceptance, discount houses remain small, compared to full-service firms. Schwab, for example, says it has some 1.3 million customer accounts. Merrill Lynch, by contrast, is believed to have well over 5 million customer accounts.
Competition is now keen within the discount business; in large part because of new innovations in technology.
Some firms, such as Fidelity, offer discount on discounts, referred to within the industry as ``deep discounts.'' Various telemarketing devices, such as Schwab's new touch system, are being contemplated, or are in operation for several discounters. Some firms are looking for specialty business. Schwab, for example, seeks accounts from independent financial consultants.
Owners of traditional brokerage houses have not stood still. Last summer, Sears Roebuck & Co. introduced a computer program, called Prodigy, which enabled Sears' customers to obtain discount brokerage services without having to go through a member of Sears' own financial family, Dean Witter Reynolds Inc., a full-service brokerage. The Prodigy program, a shop-at-home information service jointly owned by Sears and IBM, was not happily received by Dean Witter brokers.