E-Trade Group's agreement this year to acquire Telebanc Financial Group raised expectations about the creation of a combined bank-brokerage powerhouse on the Internet, but it was all old hat to Waterhouse National Bank in Jersey City.

Waterhouse is a sister company of TD Waterhouse Securities, the second-largest discount brokerage, which is an arm of TD Bank Financial Group, the parent of Toronto-Dominion Bank.

Since its creation in 1994, $4.5 billion-asset Waterhouse National has provided complementary banking services to the customers of TD Waterhouse Securities.

Formed to offer a sweep-account service for idle cash balances, Waterhouse National has developed a full-service menu including checking accounts, credit cards, mortgage loans, certificates of deposit, and electronic bill payments for 500,000 account holders. The bank has always served customers only through electronic channels -- initially the telephone, then automated teller machines and, since last March, the Internet.

"Waterhouse is not the first out of the gate" to combine on-line banking and brokerage services, said Bill Doyle, director of on-line financial services at Forrester Research in Cambridge, Mass. "But it is relatively unique."

Since last week, Waterhouse National has linked banking and brokerage services more tightly, moving to solidify its position among one-stop financial providers.

Customers who hold accounts at both the bank and the brokerage now can easily move funds between the two. They can pay bills electronically or withdraw funds through ATMs, while maximizing the balances in higher-earning brokerage accounts.

The service, Funds Transfer Link, is said to be the first of its kind at a major on-line brokerage. "Our customers told us they wanted to keep their everyday banking and investing lives distinct, but they also wanted an easy connection so they could transfer funds between accounts," said TD Waterhouse Group president Frank J. Petrilli.

"Waterhouse has managed to build a strong Internet brokerage and a strong Internet bank offering," said Christopher Musto, director of financial services at Gomez Advisors Inc. of Concord, Mass., which is known for its quality ratings of on-line services.

The only other institution that is strong on both sides of that ledger is Bank One Corp., Mr. Musto said. Its bankone.com ranked No. 15 on Gomez Advisors' Internet broker scorecard for summer 1999, one notch behind TD Waterhouse Securities.

Waterhouse National's status as a broker's affiliate gives it a very different outlook from banks on-line that are adding brokerage services, its officials contend.

"We're focused on the investor customer," said Ron Hodges, president and chief operating officer of Waterhouse National.

The bank draws its customers from among the two million active accounts of TD Waterhouse Securities. That focus sets its marketing strategy apart from that of most on-line banks, which are striving to build brand awareness through multimillion-dollar mass-marketing campaigns.

The average TD Waterhouse brokerage customer is "the preferred customer of any of the brick-and-mortar or on-line banks," said Carrie Rattle, senior vice president of product management for the discounter.

The average annual salary is $90,000, and average assets, not including homes, total $263,000. Sixty-seven percent have college degrees, and 97% have access to a personal computer.

In addition to the favorable demographics, "our customers are already on-line for trading, so the potential of their going on-line for banking is huge," Ms. Rattle said.

Marketing costs are kept low because most of the communications are carried out through regular newsletters and direct mail. "We can get to potential customers easily and cheaply," Ms. Rattle said.

The brokerage, for example, received 20,000 responses to an offering highlighted in a recent newsletter, Ms. Rattle said, indicating the publication's high readership. Results from the first bank offer made through the newsletter have not yet been tallied, she said.

The bank conducts numerous surveys of TD Waterhouse Securities customers.

"Our bread and butter is what the customers tell us," Mr. Hodges said.

As a result, Waterhouse National does not even bother offering one of the staples of on-line banks -- savings accounts. "Our customers don't like to have savings accounts," he said. "They want to invest their money. A 6% account doesn't matter to them."

Certificates of deposit are used mostly by Canadian customers who want to keep money in a U.S. account, Mr. Hodges said. "The CDs don't offer much to the U.S. customer."

TD Waterhouse Securities customers do want to manage their investing and banking in one place, Mr. Hodges said. In addition to offering free funds transfers between banking and brokerage accounts, the bank lets customers view account details on one screen.

Banking products have been tweaked to appeal to Waterhouse National's investment-oriented customer base. Its credit card, for example, offers a 1% cash rebate, which goes into a customer's brokerage account. Checking accounts, which otherwise cost $6.95, are free to brokerage customers. Waterhouse National is not yet profitable, Ms. Rattle said, but it is fulfilling its mission of keeping TD Waterhouse brokerage customers happy.

Susan Cohen, an analyst at Dundee Securities Corp. in Montreal, said she expected the bank to increase its contribution to the TD Waterhouse Securities bottom line as its number of customers and breadth of products grow.

Being profitable is "not our first concern," Ms. Rattle said. The goal is "to provide a greater breadth of services to TD Waterhouse customers. We want to keep them longer because they're very profitable."?

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