Freedom of Information

When Charles Schwab Corp. had to backpedal a few weeks ago from its heavily touted plan to provide high-level stock research to customers, it seemed easy for individual investors to laugh it off as just an amusing corporate faux pas.

After all, just days after saying it would make available sought-after Wall Street analyst reports, the nation’s largest discount broker nixed the idea when the firms that write the reports--and compete with Schwab--balked at Schwab handing out their work.

But in truth, the episode was significant for individual investors, regardless of the brokerage firms they use.

For years small investors have faced a basic trade-off in choosing brokerages. They could go to full-service firms such as Merrill Lynch, whose extensive analysis helped with stock-picking but whose fees were hefty. Or they could use discounters with lower prices but minimal research.

Today, however, small investors increasingly can bypass full-service firms and get analyst reports from discounters.

Three well-known discounters--DLJdirect, Olde and Fidelity--already offer select analyst reports. A fourth--E-Trade--will do so soon. And others are likely to follow suit.

In many cases, the reports are prepared by full-service firms and released to discount customers on a delayed basis. The research comes to investors with various strings attached, but still costs a fraction of what full-service brokers charge.

“It’s not rocket science to realize your clients want research,” said Michael Gazala, senior analyst at consulting firm Forrester Research. Discounters are “going to have a harder and harder time differentiating themselves if the only way they try to do it is by cheaper prices.”

Indeed, the emphasis on research represents a shift for discounters who have spent years dropping commission prices. Until now the most recent industry development was the emergence of so-called deep discounters, whose prices undercut those of established discount firms.

To be sure, even traditional discounters still duke it out over prices. A skirmish broke out in October, for example, when Fidelity unexpectedly slashed commissions.

But among the better-known discounters, rates now dip as low as $7.95 per trade, and some firms say low prices are no longer a guaranteed way to draw customers. In fact, a new report from consulting firm Jupiter Communications predicts that some firms eventually will execute a portion of their trades for free and instead make money by selling ads on their World Wide Web sites.

“When you get to the level of $10 or $20, people are going to say, ‘Gee, I’m investing $10,000 in the market and the difference between $10 and $20 is not that significant,’ ” said Blake Darcy, chief executive of DLJdirect Inc.

There are other reasons behind the greater availability of research.

The acceptance of the Internet has given brokers an easy way to distribute the material. And discounters can offset lower trading commissions by charging for research or by luring customers into buying other services.

Finally, there’s a shift among discount customers.

Many individual investors buy their own stocks these days, and growing numbers use the Internet to do so. Forrester estimates that the roughly 3 million online brokerage accounts at the end of 1997 will swell to 14.4 million by 2002.

But unlike past do-it-yourselfers who felt comfortable analyzing raw numbers and just wanted cheap trading, newcomers are looking for more guidance.

“We just think the world is changing, that consumers want access to many types of research from many sources,” said Tom Taggart, a Schwab spokesman. “That’s what the Internet is all about, and that’s where we’re headed.”

Many discount brokers offer basic research such as Standard & Poor’s company reports, earnings estimates, rudimentary stock charts and links to stock-related Internet sites. But while the offerings are useful to a point, the numbers lack detailed commentary on companies and their prospects.

That’s where the new research offerings come in: DLJdirect and Olde make reports from their in-house analysts available via their Web sites. Fidelity and E-Trade have contracted with full-service firms--Salomon Smith Barney and BancAmerica Robertson Stephens, respectively--for permission to provide their research.

The DLJdirect and Fidelity Web sites delay the release of research at least 24 hours after supplying it to institutional customers such as mutual funds and pension funds. E-Trade says small investors will get its materials shortly after institutions. Olde, which caters only to small investors, releases its reports to all customers at once.

DLJdirect is the online brokerage unit of Donaldson, Lufkin & Jenrette Securities Corp., a major Wall Street investment bank, and features research from DLJ stock analysts. To have access to the research, DLJ customers must have accounts of at least $100,000. But at a cost of $20 for a 500-share trade of a $50 stock, its prices are very competitive.

DLJ’s 65 analysts follow 1,100 companies. The reports are released to DLJdirect customers anywhere from several hours to several days after institutional clients get them, Darcy said.

After signing onto the DLJdirect Web site, a screen displays a list of the most recent reports. When this story was reported, the most recent one was a week old.

In the Daily Research category, customers can access day-old stock and industry updates, market and economic analysis and DLJ’s recommended list of stocks to buy. Weekly and monthly summaries contain more analysis.

Under Company Reports, DLJdirect has an A to Z list in which customers click on letters to display lists of companies.

A small downside to the site: Those lists exclude mention of some big-name companies, including Intel and Microsoft. To find information on them, users must click on Search, and type in specific ticker symbols. DLJdirect was started in October and hasn’t yet put all reports in its archive, a spokeswoman said.

DLJdirect’s site also has S&P; Market-Scope@Home, a Standard & Poor’s Corp. service that has recommended stocks and market commentary; company earnings estimates from Zacks Investment Research; and data from the briefing.com Internet financial site. DLJ also features stock and mutual-fund screening systems.

Many of DLJdirect’s customers are coming from full-service brokers, Darcy said.

“They find high-grade brokerage research to be very attractive,” he said. “It doesn’t mean they’re going to buy every stock that’s recommended or take advice blindly. But they like to get that information and make their own decisions.”

Olde has fewer analysts covering fewer companies than does DLJ: 21 in-house researchers following more than 200 companies.

Olde’s analysts follow companies of all sizes, ranging from tiny LoJack Corp. (ticker symbol: LOJN) and Otter Tail Power Co. (OTTR) to giants like Gap Inc. (GPS) and Walt Disney Co. (DIS). Olde’s Web site is easy to navigate, with a page listing all the companies Olde follows, the date of recent studies and a field showing whether the report is a brief update or a full analysis.

The downside to Olde is that some of its reports are dated. Of the 14 companies listed in its Computer/Technology section when this story was reported, for example, the latest update was done in early May and the most recent full report in late April. In an ever-changing sector like tech, those are long intervals.

Another downside to Olde: It provides earnings estimates only for the companies its own analysts follow. Unlike many other discounters, it doesn’t subscribe to services such as Zacks or First Call, which supply earnings estimates for all other companies.

Fidelity Brokerage Services is a unit of the giant Fidelity mutual-fund family. The Salomon Smith Barney research that Fidelity releases is delayed 24 hours, said Steve Killeen, Fidelity senior vice president.

Salomon reports couldn’t be reviewed for this story because of a recent merger between Salomon and Travelers Group, the parent of Smith Barney. Until the computers of the two Wall Street firms are integrated with each other and with Fidelity, investors can’t electronically access full Salomon research. At the moment, they can only look at brief company and industry updates and rating changes, Killeen said. The full reports will be available “shortly,” he said.

In October, E-Trade inked a deal with BancAmerica Robertson Stephens, a San Francisco-based investment bank, to make all of the latter’s research available to E-Trade customers, said Rebecca Patton, an E-Trade senior vice president.

The Web site is now being tested by 6,000 E-Trade customers, and a broad launch is expected within several months, she said. E-Trade likely will charge between $10 and $25 a month for access to the research, Patton said.

Unlike clients of other firms, E-Trade customers will get the research “within minutes” of institutions, Patton said. BancAmerica Robertson Stephens follows about 500 companies, she said.

Although only a handful of discount firms now offer analyst reports, some discounters say it’s only a matter of time before they provide them too. They reason that full-service firms will lose investors as discounters grow. That will force the full-service firms to license their work to offset the cost of running research departments.

“We’re generally finding people expect you to have research and, frankly, to have free research,” said Michael Anderson, president of Ameritrade Inc., which charges $8 for each online trade.

“Someday you’ll find that even if you are a deep-discount broker you’ll be providing those analyst reports with a 30-day or 60-day or 90-day lag, depending on what we are able to negotiate with the firms that provide the analysis,” he said.

*

Times staff writer Walter Hamilton can be reached at walter.hamilton@latimes.com

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Data at a Discount

A growing number of discount brokerage firms offer Wall Street analyst reports to lure customers. But many already provide extensive basic research such as earnings estimates, stock charts, news stories and financial data:

Broker: Accutrade

Phone: (800) 494-8946

Web address (https://www.): accutrade.com

Sample on-line stock commissions (500 shares @$50 each) Amount: $38.00

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.15%

Partial list of free research provided: Thomson Financial, First Call

*

Broker: Ameritrade

Phone: (800) 669-3900

Web address (https://www.): ameritrade.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 8.00

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.03

Partial list of free research provided: Market Guide, First Call

*

Broker: American Express Financial Direct

Phone: (800) 658-4677

Web address (https://www.): americanexpress.com/direct

Sample on-line stock commissions (500 shares @$50 each) Amount: 24.95

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.10

Partial list of free research provided: Zacks, S&P;, Telescan, Reuters, Comtex

*

Broker: Charles Schwab

Phone: (800) 435-4000

Web address (https://www.): schwab.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 29.95

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.12

Partial list of free research provided: First Call, Big Charts, Briefing.com, Dow Jones

*

Broker: Discover Brokerage Direct

Phone: (800) 584-6837

Web address (https://www.): discoverbrokerage.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 14.95

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.06

Partial list of free research provided: Zacks, Thomson Financial

*

Broker: DLJdirect

Phone: (800) 825-5723

Web address (https://www.): dljdirect.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 20.00

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.08

Partial list of free research provided: S&P;, Lipper, Zacks

*

Broker: E*Trade Securities

Phone: (800) 786-2575

Web address (https://www.): etrade.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 14.95*

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.06

Partial list of free research provided: Reuters, First Call, Baseline, Quote.com

*

Broker: Fidelity Brokerage Services

Phone: (800) 544-8666

Web address (https://www.): fidelity.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 19.95

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.08

Partial list of free research provided: Morningstar, S&P;, First Call

*

Broker: Jack White & Co.

Phone: (800) 233-3411

Web address (https://www.): jackwhiteco.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 25.00

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.10

Partial list of free research provided: Quote.com

*

Broker: Olde Discount

Phone: (800) 872-6533

Web address (https://www.): olde.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 100.00

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.40

Partial list of free research provided: S&P; mutual fund reports

*

Broker: Quick & Reilly

Phone: (800) 672-7220

Web address (https://www.): quick-reilly.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 14.95

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.06

Partial list of free research provided: Reuters, Zacks, Big Charts, Briefing.com, Baseline

*

Broker: SureTrade

Phone: (212) 566-2031

Web address (https://www.): suretrade.com

Sample on-line stock commissions (500 shares @$50 each) Amount: 7.95

Sample on-line stock commissions (500 shares @$50 each) % of trade: 0.03

Partial list of free research provided: Reuters, Zacks, Baseline, Briefing.com, InvesTools

* For exchange-listed stocks; $19.95 for Nasdaq-listed stocks