ESTABLISHED FIRMS’ WEB SERVICES STEAL THUNDER OF ONLINE BROKERS: MERRILL, MSDW SITES JOIN SCHWAB, FIDELITY AS CONSUMER FAVORITES

Wirehouses and other established brokerages dusted their online counterparts in a study of top brokerage websites released last week, stunning industry observers.

In its report, Cambridge, Mass.-based Forrester Research ranked Charles Schwab Corp. first, hardly a surprise. Forrester’s No. 2 ranking is the real shocker: Merrill Lynch & Co. Inc., which began offering discount online trading just five months ago.

The country’s biggest brokerage was followed by DLJdirect Inc., Fidelity Investments, TD Waterhouse, Datek Online Holding Corp., E*Trade Group Inc., Ameritrade Holding Corp., Morgan Stanley Dean Witter Online (until Thursday called Discover Brokerage Direct) and, finally, Suretrade Inc.

Forrester compiled the study by asking 10,000 consumers to rate the sites based on criteria including advice and market information, customer service, how efficiently transactions were made, and the overall value of the services. Forrester analysts opened their own accounts, too, and did some shopping before melding their findings with those of the consumers to create the rankings.

Forrester’s rankings were based on Merrill’s fee-based account program, which allows unlimited trading for $1,500. Online trades of $29.95 become available Dec. 1.

smoking the competition

“It’s surprising, all right,” says Philadelphia-based mutual fund industry consultant Burt Greenwald. “When you say ‘online brokerage,’ Merrill isn’t a name that comes to the fore.”

Forrester wrote in its report that Merrill “smoked its discount completion with great advice and high customer confidence.”

Merrill gives customers unlimited trades, financial advice, research and the ability to link accounts without paying fees for each.

Merrill’s Unlimited Advantage account has been a huge success, according to a recent Salomon Smith Barney research report, particularly when compared with the real-world Unlimited Advantage offering, which preceded its online counterpart by three years.

In the several years of Unlimited’s existence, it garnered $24 billion. Since making the fixed-fee account available online, Merrill has already netted $16 billion.

The online brokers have less to like in the Forrester report, which accused several of lacking quality customer service and of poor site design.

“Datek is true to its image — reliable, fast and cheap. But roadblocks like a frustrating, snail-mail-based account-opening process keep this brokerage in the middle of the pack,” according to the study.

The report did not discuss the Iselin, N.J.-based company’s legal troubles, which include being fined $50,000 on charges of dipping into customer funds to pay its own bills.

Datek spokesman Mike Dunn argues that “our account opening process is pretty good. Obviously we’re always working to upgrade and provide better service to our customers. We think the most important aspect for our customers is having their trades executed rapidly, and we repeatedly come out on top in that area.”

Site for “skinflints”

Forrester’s assessment of Suretrade is less generous. “Investing skinflints love Suretrade’s price, but they get what they pay for — a clunky, scattered design that makes the site painful to use. . .interminable waits at the call center.”

Still, it continues, “Suretrade’s e-mail response was the fastest of the sites we surveyed.”

Spokeswoman Jude Stewart says Lincoln, R.I.-based Suretrade is redesigning its site and is opening up a second customer service location that will raise the total of help desk employees from 150 to 250.

“I think it’s telling that there isn’t an online-exclusive site in the top five,” Forrester analyst James Punishill says, “Customer service killed a bunch of them.”