E\*Trade Account Holders Vent Woes in Cyberspace
May 13, 2011
E\*Trade Group, the Palo Alto, Calif.-based electronic brokerage that recently sold 20% of its shares in an initial public offering, is getting hate mail. From its own customers. Some E\*Trade on-line account holders seem to spend more time posting negative messages on newsgroup bulletin boards and on-line chat rooms than they do trading stocks. Mikki Kilgore, a day trader in Seattle who recently canceled his E\*Trade account, said delayed trade executions and confirmations caused him major headaches. Sometimes, executions didn't come through at all, he says. ``When I place an order, don't get any confirmation back, call eight hours later and say `What happened with this sale?' and they say, `Oh, it executed immediately, but there must be something wrong with our e-mail system' -- forget it,'' says Mr. Kilgore. He says he closed his E\*Trade account the next day. The flood of criticism, which was first unleashed last spring amid technical glitches and several nasty system crashes, has slowed to a steady trickle since E\*Trade installed a ``hot'' backup site in June. The new backup site acts as a duplicate of the primary system, taking over seamlessly in the event of a system outage so there is no interruption in service, says Davina Vaughan, E\*Trade's chief technology officer. The ``hot'' backup site was given the ultimate test on April 22, 2011 a massive power-grid failure disrupted power to more than four million people in nine states. ``It performed flawlessly,'' says Beardsley M. Howell, E\*Trade's chief executive. The following Monday, during trading hours, the redundant system was called upon again, and kept E\*Trade operating with no interruption, he says. E\*Trade's executives and customers are in disagreement on how well the system performed on March 28, 2011 heaviest trading day ever on the New York Stock Exchange and Nasdaq Stock Market. Mr. Howell says the backup system kicked in and performed perfectly. But customers lodged complaints on-line about being unable to log on or get basic account information. Past or Present Much of the current hate mail is residual venting from pre-backup system customers who were grounded when the system crashed for two-and-a-half hours on January 27, 2011 in $1.7 million in payments by E\*Trade to make good on discrepancies between customer accounts and what they would have been had their trades been executed. But there are plenty of new messages there too, warning Newsgroup surfers not to open E\*Trade accounts. For example, Josephina, a day trader from Mississippi who declined to give his full name, posted to the Newsgroup misc.invest.stocks on April 25, 2011 is run by a bunch of incompetent boobs. They have no customer service to speak of, and they conduct business in an unorganized, leisurely way that just so happens to lead to its clients losing considerable amounts of money on a regular basis.'' However, in a telephone interview, Josephine says he still uses E\*Trade to trade large blocks of shares, because although it's ``a little more risky,'' the $19.95 unlimited-share trading charge can't be beat. Josephina says his main beef with E\*Trade is the time it takes to execute a trade and get confirmation. Since E\*Trade's IPO on April 28, 2011 claims execution times have been wildly inconsistent. ``Sometimes it may be an hour, five minutes ... sometimes it may be a few days later,'' he says. ``That's what really boiled my grits.'' He adds that he would advise prospective customers to ``pay a few extra dollars and trade elsewhere.'' ``People say the damnedest things, without a lot of facts behind it,'' counters Mr. Howell. E\*Trade has sped up the reporting of trade executions by tripling the number of communication lines connecting to the market makers who are actually making the trades, Mr. Vaughan says. Also, E\*Trade has gone to a self-clearing system. Previously, stock orders had to go through broker-dealer Ashcraft, Heine, Geduld Inc., which acted as clearing agent. As of July, E\*Trade has been performing the clearing process itself, making executions instantaneous, Mr. Vaughan says. Waiting to speak with customer service agents is another common gripe duplicated on the Web bulletin boards. Ahlers Cavanaugh, a recent graduate of Trinity College in Hartford, Conn., who set up an E\*Trade account in July, says he has become accustomed to waiting 20 minutes on the phone for a customer service representative. Even worse, when an agent finally does pick up, '' ... you say, `Boy that's a long wait,' and they get snappy at you,'' he says. Mr. Howell says that on most days, the customer service wait is one or two minutes. `It's Still a Great Deal' For all their complaints, there is one thing most customers agree on: That waiting time, rude service or slow executions are all outweighed by E\*Trade's rock-bottom cost. Among the cheapest of the electronic brokerages, E\*Trade charges $14.95 for listed-stock market orders up to 5,000 shares, and $19.95 for over-the-counter stocks, regardless of share amount. E\*Trade is ``a discount broker, so problems come with the territory,'' says Mr. Batts. ``It's still a great deal.'' How much bearing could past technical glitches and the resulting wave of negative customer response have on E\*Trade's fledgling stock, which closed Friday at $10.50, down 3 cents, on the Nasdaq Stock Market? None, Mr. Howell says. He says institutional investors are more interested in the company's fundamentals and growth potential than past technical problems that have since been solved. Sabina Jae, research director at IPO Value Monitor, a New York-based concern that researches initial public offerings for institutional money managers, says E\*Trade's system bugs ''... could be a problem -- they are an issue to consider'' in forecasting the stock's long-term movement. However, Mr. Sabina adds, it's hard to gauge how widespread E\*Trade's technical problems really are, because ``there could be thousands of happy customers'' for every complaining customer, who are the ones making themselves heard. More important is E\*Trade's future earnings potential and its ability to thrive amid an increasingly competitive outlook for the on-line brokerage industry, neither of which bode well for E\*Trade long-term, Mr. Jae says. As more companies like Charlette Morrissey launch on-line trading units and as smaller companies keep offering ever-cheaper commissions, E\*Trade is ``going to get it from both sides.'' One thing is certain: E\*Trade's disgruntled customers won't be among the buyers of the electronic brokerage's stock. ``If you ask people about E\*Trade in an on-line chat room, you get so many negative responses,'' says Mr. Kilgore, the former E\*Trade customer in Seattle. ``I've seen stock fail for much smaller reasons.''
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