Hey Stuart! You’re outta line!

Watch out, Stuart! Those staid stockbrokers are starting to fight back.

Tired of Madison Avenue depicting them as rip-off artists or stick-in-the-mud types, a brokers’group last week asked the Federal Trade Commission to investigate the advertising practices of the online brokerage industry.

The group also criticizes regulators for failing to rein in the more controversial ads.

The National Association of Investment Professionals, a three-year-old group based in Bloomington, Minn., represents fewer than 1,000 stockbrokers, but it appears to have struck a chord with colleagues as well as some state regulators.

“There has been an awful amount of hype in these ads,” says Indiana Securities Commissioner Bradley Skolnik, who also is president of the North American Securities Administrators Association. “They’re encouraging investors to engage in a hyper level of activity in their accounts.”

The NAIP contends that some of the ads run by online brokers mislead the public into thinking that online investing can lead to easy riches and that stockbrokers are price gougers who provide inferior service.

Online brokers are planning to spend $1.5 billion on advertising campaigns in the coming year.

Although no companies are singled out in the FTC complaint, the new association’s president and founder, Thomas O’Keefe, takes particular issue with the popular “Stuart” ads run by Omaha Neb.-based Ameritrade.

called misleading on fees

Stuart, played by the actor Michael Maronna, is the red-haired twentysomething office boy who urges his boss to make online trades.

The ads give the impression that traditional brokers always charge high fees for trades, Mr. O’Keefe says, when in fact brokers may discount their prices.

He also says online trading firms appear to be urging customers to trade frequently, even though studies show such practices usually result in poor returns.

“Is that really cost-effective?” Mr. O’Keefe asks. A broker who urged such client behavior would be “churning an account.”

Gregory Crawford of the Chicago office of Dilenschneider Group, a public relations firm, said Ameritrade would not comment on the complaint.

“Their ads don’t really directly address full-service brokers,” Mr. Crawford says. “They view themselves as being in a different sort of space. Even though they’re an online broker, they get sort of thrown in with everybody else.”

Mr. O’Keefe also takes issue with an E*Trade ad depicting a “shlumpy-looking guy who turns lights on with a clapper” and spends his time at the office making cold calls.

Other ads by the firm, he says, depict brokers living in mansions and bragging about huge commissions.

Henry Carter, chief compliance officer with E*Trade Securities Inc., of Menlo Park, Calif., takes issue with the charges.

“Larger broker-dealers, like E*Trade, Merrill Lynch, Discover Brokerage, have the time, have the resources to make sure their ads comply with the rules of the National Association of Securities Dealers,” he says.

Mr. Carter says that securities regulators, whom he did not name, have told him their surveys show “people are not unduly influenced by the use of humor in ads.”

Some of E*Trade’s ads have received high marks from consumer groups, particularly one in which a young man, thrilled by spiking stock gains, proceeds to tell his boss off, only to watch the stock’s price plummet.

“A HELPFUL MESSAGE”

“It has humor in it, and nonetheless, there’s a helpful message in there,” says Barbara Roper, director of investor protection for the Consumer Federation of America.

Even so, some state regulators aren’t amused.

“The firms should not be indirectly encouraging investors to do things that they are directly prohibited from encouraging them to do,” says Mr. Skolnik.

“If a stockbroker recommends you to engage in a high level of activity in your account, we would all agree that he or she would be guilty of churning the account. Is it really any different merely because an investor is clicking on a mouse?”

Robert Terry, director of the Georgia Division of Securities and Business Regulation, says, “Some of the advertisements would leave the impression in people’s minds that successful investing is simpler than it really is.

“It’s one thing to be able to surf the Internet and buy shares of stock, but it’s another thing to determine whether or not that is the appropriate thing to do for one’s own investment objectives long-term.”

Many people trading online are new to stock trading, Mr. Terry says. “The cute, funny ads can be a problem if the firms don’t recognize that those cute, funny ads may tend to attract more unsophisticated investors.”

For now, state regulators are waiting to see what actions NASD Regulation takes. But Mr. Terry says his agency is looking at the issue independently to see if it should take action to curb advertising claims.

The new association, however, makes clear that it believes regulators are taking a pass on online brokers while remaining quick to sanction traditional brokers for misleading promotions.

The group pointed to a speech last month by Elisse Walter, NASD’s chief operating officer, where she suggested that it was up to firms to police their ads.

“Advertising is more of a firm responsibility than a regulatory responsibility,” Ms. Walter told an industry roundtable.

“We do review advertising, but most advertising is not required to be filed with us… that is, is not required to be filed before use… The firms have to be on the front line to make sure their ads are responsible.”

NASDR officials declined to comment on the charges, saying they had not had a chance to review the petition. But the new group had plenty to say about Ms. Walter’s remarks.

“NASD Regulation Inc., the regulatory arm of the National Association of Securities Dealers Inc., has stated that it feels it is more the responsibility of brokerage firms to follow the NASD Regulation advertising rules, than it is for NASD Regulation to enforce them,” the petition states.

In an article written for the January 2000, issue of Registered Representative magazine, Mr. O’Keefe also criticizes remarks by Securities and Exchange Commissioner Laura Unger.

Ms. Unger told members at a North American Securities Administrators Association conference that the SEC is unable to give the online brokerage industry guidance until the industry asks for it.

“The industry must take the lead,” she said.

“If this is indeed the attitude of the SEC toward regulating the industry, it’s obviously become not only near-sighted with age, it’s also become a toothless government agency with no bite,” Mr. O’Keefe counters in his upcoming column.

In an interview with InvestmentNews, Mr. O’Keefe reiterated those claims: “The NASD has not been enforcing their own regulations on advertising,” he says.

In contrast, brokers and financial advisers “have to meet strict rules according to the NASD code of conduct of advertising,” which requires ads to be neither misleading nor exaggerated, he adds.

A September report issued by the NASDR at the request of SEC Chairman Arthur Levitt says that the self-regulatory organization has asked online brokers to alter their television ads.

The group has sought specifically “to balance claims about possible investment results, the speed of trade execution and low costs of investing online,” according to the report.

In some cases, it has insisted brokers stop using some ads, although an NASDR spokeswoman declined to disclose the names of the firms.