E-Trade Group Inc. elbowed its way closer Thursday to serving high-net-worth clients, announcing a deal to buy privately held PrivateAccounts.com, a Minneapolis developer of online separate accounts.
PrivateAccounts has no assets under management, since it has not yet formally put a product in the marketplace, but it offers to set up trading accounts for customers with a minimum balance of $100,000.
That is far less than the $1 million minimum usually required to set up a separate online trading account, but represents a big step up for E-Trade, whose account balances average about $21,000.
"E-Trade's assets aggregation strategy will probably work" as younger, more Internet-savvy investors grow older and accumulate wealth, said William Wong, an analyst at Josephthal & Co. in New York.
With the acquisition deal, the Menlo, Calif.-based online broker is pursuing a long-term strategy to offer a full range of online financial services - from brokerage to banking to asset management - in one package, said Liat Rorer, vice president of asset gathering.
"Earlier this year E-Trade made a strategic decision to expand what we call our asset gathering business," said Ms. Rorer. The purchase of PrivateAccounts .com is part of that strategy, as is the firm's partnership with Ernst & Young to offer financial advice to customers online, she added.
The addition of a separately managed account firm like PrivateAccounts.com should help E-Trade over the long term, Mr. Wong said. PrivateAccounts .com's relatively low minimum investment requirement should ultimately attract wealthier customers than E-Trade currently attracts, he said.
The acquisition is intended to combine the ease and "high-touch" advantages of Internet investing, while increasing E-Trade's assets under management, Christos M. Cotsakos, chairman of the board and chief executive officer of E-Trade Group said in press release.
E-Trade's strategy is not likely to draw business from more expensive private client businesses - such as U.S. Trust - anytime soon, because E-Trade is pursuing a different market, said Mr. Wong.
But as E-Trade begins to establish a physical presence with Automated Teller Machines across the country - which the company has announced plans to do - the company may become a more significant competitor to the online divisions of big brokers such as Charles Schwab & Co., Mr. Wong said.
"In my opinion, E-Trade's ambition is to look more Schwab, but in a more cost-effective way," he said.
E-Trade would not discuss the terms of the deal and did not say when the deal would close.
Separate accounts enable individual investors to create their own investment portfolio and package it so it resembles a mutual fund. PrivateAccounts .com has been developing a system to attract professional money managers to guide its customers in their investment decisions, a company release said.
E-Trade plans to have a consumer product on the market by the end of the year, Ms. Rorer said.
The firm has not decided whether to keep the PrivateAccounts.com name, or simply subsume the company entirely into E-Trade , she added.
The other component of E-Trade's asset-gathering strategy, the joint venture with New York-based consulting firm Ernst & Young, was announced in May.
That arrangement is aimed at providing E-Trade's 2.6 million clients with online and in-person access to Ernst & Young's 1,000 financial planners for advice on such things as home buying and tax and estate management planning.
As part of the E-Trade/Ernst joint venture, each party agreed to invest $25 million to develop technology to facilitate access to the advice. E-Trade said it would own 50.1% of the new firm.
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