E-Trade Financial Corp. will soon join the list of brokerages to offer a comprehensive cash management product to capture more business from the most lucrative customers.
This month 50,000 customers will be the first to gain access to E-Trade Complete, which includes a checking account, credit products, online bill payments and funds transfers, free automated teller machine use, and check imaging, and other features. E-Trade plans to offer it to more than 1 million customers by midyear.
The cash management concept bears similarities to those of some E-Trade competitors, such as Total Merrill, which Merrill Lynch & Co. offers to its customers. Major brokerages are trying to compete more effectively with banking companies for customers' money by offering cash transaction accounts.
E-Trade executives are talking up the new offering as one they believe could outstrip previous offerings in convincing consumers to consolidate their business rather than spread it out across many firms.
"Cash is where banking, brokerage, and lending all intersect," said Lou Klobuchar Jr., the president of E-Trade's retail business, E-Trade Financial Services, said in a speech Thursday at the Best Practices in Retail Financial Services Symposium in Carlsbad, Calif. He zinged competitors, who he said had built business models based on "customers' fragmented attention."
Wealth management is another focus. E-Trade seeks to acquire 12 to 18 wealth management companies nationwide, each with $500 million to $3 billion of assets. Last month it bought Howard Capital Management, a southern California wealth adviser. It did not disclose Howard Capital's asset size.
E-Trade plans to retain the management and names at acquired companies and make their services available to its brokerage customers, again targeting its "serious investor" segment.
To hype the new cash management offering, E-Trade has added $65 million to this year's marketing budget, but it acknowledges that it has a tough road ahead. "We have no illusions; there is inertia when it comes to how people manage their financial services," Mr. Klobuchar said. However, the approach "is on the right side of history."
The online broker is hoping to stir interest with a feature of the Complete offering - a cash "optimizer" that lets users compare cash-allocation options, such as interest earned on money market accounts, against certificates of deposit, or the costs and savings of various credit choices, such as credit card debt, versus the cost of a margin loan or a home equity line of credit. The feature can be used to compare offerings from E-Trade or outside companies.
"It's going to be the hook to get a lot of people to sign up for E-Trade Complete," Campbell Chaney, an analyst at Sanders Morris Harris, said in a phone interview Friday.
E-Trade has been looking for new paths of growth. It is building out a modest network of 36 branches nationwide that Mr. Klobuchar said will put 75% of E-Trade's customers within 20 miles of an office.
It has already divvied up its brokerage customers into tiers: active traders, "serious investors" (who have $50,000 or more of assets with E-Trade), and "Main Street clients" (those with less than $50,000 of assets in their accounts).
E-Trade Complete is aimed squarely at the "serious investor" category, which the company sees as the one with the most potential.
Mr. Klobuchar said in an interview that annual revenue from each serious investor is projected to increase to between $2,000 and $3,000, versus about $1,100 today, through the E-Trade Complete offering. Annual revenue from each active trading customer will stay near $4,300, because commission rates will decline.
Main Street customers are "low-potential," he said. "The serious investor space is where we're really spending our time."
Also, as other online brokers engage in a fierce pricing battle, E-Trade is offering a credit card that rewards customers with free trades. Mr. Klobuchar said the card will trump the fee structures of other brokers who "live or die" on commission prices and must continually lower commissions to compete.
The credit card customer "is going to stick with us, because that trade is free," he said.
