Prudential Brokerage Falls Into Online

Prudential Securities is trying a novel approach in the raging war between full-service and online brokers.

The nation’s fifth-largest full-service broker said Thursday that it will now allow its own customers to trade stocks online. More importantly, it is launching an optional program that does away with the traditional commission-based pricing system that most full-service customers have grown accustomed to.

Instead, clients will pay an annual asset-based fee for advice. And if they want to execute a trade based on that advice--either online or with the help of a Prudential advisor--they’ll pay a separate fee of $24.95.

For years, full-service brokers have complained that clients were taking their advice but executing the actual trades at cheaper online brokers to save money on the commissions.

This represents Prudential’s effort to retain as much of that revenue as possible--whether customers decide to execute trades with them or not, says James Punishill, an analyst with Forrester Research in Cambridge, Mass.

“This is a real bold move,” Punishill said.

Prudential’s announcement underscores the growing influence of online brokers.

A Forrester study estimates that by the end of this year, 19% of “wealthy” households (those with at least $750,000 in investable assets) will be trading stocks online. That’s up from 5% in 1997.

Until now, the only real response that full-service brokers have had to online trading is to create their own Web subsidiaries, such as Morgan Stanley Dean Witter’s Discover Brokerage Direct.

Dan Burke, an analyst with Gomez Advisors in Concord, Mass., says this asset-based fee for advice could be adopted by other brokers.

Prudential spokesman Charles Perkins agrees. “Transactions are now a commodity,” he says. “Advice is what’s key.”