Online Brokers Tone Down Ads

In response to harsh criticism, top online brokers are moving quickly to tone down their ads, according to The Wall Street Journal. Charles Schwab, E*Trade and Datek Online all unveiled plans last week — which included new television and print ads.

For several months, Security and Exchange Commissioner Chairman Arthur Levitt has let it be known that the was not pleased with online brokers’ current ads that seemed to promise too much — while failing to be up front with online investors by not fully explaining the inherent risks of day trading.

Analysts say it’s no coincidence that this comes at a time the National Association of Security Dealers announced the introduction of longer trading hours beginning this fall. Under the new plan stocks would have still have a final, closing price reported at the 4 p.m. end of daytime session. Any after-hour trading would count toward the following day’s stock price. This represents a bonanza for online brokers that stand to benefit greatly by having the additional hours added to their e-commerce businesses.

The revolutionary decision — which some experts fear could disrupt Wall Street — was made to accommodate the growing number of investors who trade at home via the Internet. In fact, in a poll done for the CNBC financial cable news channel, 53 percent of active investors 21 years of age or older liked the idea of trading well into the evening — while just 31 percent opposed the move. “It’s clear that the marketplace needs this kind of innovation,” said Frank Zarb, the chairman and chief executive of the NASD.

Meanwhile, E* Trade’s new TV campaign shows a newly successful day trader burst into his boss’s office and shout, “Hey, Dinky, I quit!” But before long his stock plummets, and the ad shows same the investor coming back to his boss trying to convince him he was only kidding.

The ad ends with the warning: “Try not to get carried away.” Schwab print ads use Chairman of the SEC’s own words to warn potential investors about online trading. In another ad, Schwab Chairman Charles Schwab warns that online investing “is not the lottery.” Datek will also begin a print ad campaign next month urging online investors to be cautious and to use common sense.

2001, An Online Investor’s Odyssey?

In an unrelated report, rumors are flying that at least one top online broker is developing a robotic broker that would be able to make online stock recommendations using a new powerful artificial intelligence program. It could be available by 2001. If this is the case, analysts say online brokers could be shooting themselves in the foot. Think about it. How do you get a robot registered to sell securities?

What do you think? Let’s talk about it.