Online brokerages under scrutiny

In what could be a harbinger of intensified scrutiny, the New York Attorney General's office is conducting an inquiry into online brokerages, and four members of the US Congress have asked the US Securities and Exchange Commission (SEC) to do more to protect the rights of online investors.

The New York probe was announced yesterday, during a week when the popular online brokerage E-Trade has been suffering glitches that shut down its stock trading system. The attorney general's office is not releasing names of online brokerage firms under investigation, or the number of brokerages targeted in the inquiry, a spokesman said.

The investigation comes "in response to a recent surge of customer complaints", according to a statement from Attorney General Eliot Spritzer. His office has heard "dozens" of complaints regarding online brokerage service in the last month, the statement said.

Spritzer is asking that consumers fill out a survey on his office Internet site ( regarding their experiences using online brokerage services. Consumers from all US states may answer the survey questions.

The inquiry will attempt to find solutions to the problems consumers say they have had, and to develop ways to protect online investors, the statement said.

Those goals apparently are on the minds of four Democrats in the US House of Representatives who wrote to the SEC regarding the amount of disclosure online brokers provide to investors and asking the SEC if it will keep tabs on the industry and take care of consumer complaints.

It's likely that such concerns will be aired with increasing frequency, said Alan Alper, an analyst at Gomez Advisors, a Concord, Massachusetts based company that tracks and analyses Internet brokers and bankers. He anticipates increased federal and state scrutiny.

The Gomez online message board contains a section devoted to performance problems consumers experience dealing with Internet brokerages, including technological limitations, slow execution of trades and shoddy customer service.

"There's definitely some growing pains out there," he said. "The fact of the matter is that the volumes the online brokers are processing are 100 per cent higher than they were just in the early fall (late last October). It's a young industry and technology is not perfect. There's a lot of expectations there that have not been met."

Given that the expectations involve financial investments, people tend to be less forgiving of technical difficulties and slowness, as indicated on the Gomez message board where postings are listed anonymously.

What seems particularly to aggrieve online investors is when they are quoted a stock price and put in a market order only to discover that by the time the trades are executed and they receive confirmation, the price has changed, Alper said.

"And so consumers say, 'What gives', " he said.

They have much more to say, too. One online investor described a brokerage as "sucking lately" with servers that are "always down". Another complained of a different brokerage that "they show no shame in blatantly lying to their customers ... They deserve to go out of business. Anyone investing in this company is likely to lose their shirt."

But another writer to the message board argued that online investors are part of the problem, logging on in increased numbers to make trades on the World Wide Web, which can't handle the traffic.

"This may not change for some time," opined the writer, telling online investors that if they don't like it, they should find a different way to trade. "You pulled the trigger," the person wrote in all capital letters.

The New York Attorney General's Office, based in Albany, New York, can be reached on the Internet at http://www.oag.state.ny/. The US House of Representatives, in Washington, DC, can be reached at The US SEC, in Washington, DC, can be reached at Gomez Advisors, in Concord, Massachusetts, can be reached at +1-978-287-0095 or at

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