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E-Trade Fined $20,000 by NASD for Slow Reply

Penalty: Tardy response to regulator probing customer complaints triggers first such action against an online brokerage.


Apparently, customers aren't the only people having trouble getting through to online brokerages.

In the first such penalty against a major electronic brokerage, the National Assn. of Securities Dealers said Tuesday that it fined E-Trade Group $20,000 for being slow in responding to requests for information about customer complaints.

From April to June 1999, the NASD said it asked the No. 2 e-broker for information about 17 individual-investor grievances that had been filed with the securities industry's self-regulatory group.

E-Trade eventually furnished the data, but not fast enough for the NASD, though the regulator did not disclose how long it had to wait for the information.

E-Trade agreed to pay the fine without admitting or denying wrongdoing, though it called the response delay "unfortunate."

"It's important that when customers complain to us or to the firms that we receive the information we need promptly," said Barry Goldsmith, executive vice president of enforcement at the NASD's regulatory arm in Washington.

Paced by heavy advertising and the lengthy bull market, e-brokers have enjoyed huge gains in both new customers and trading volume in recent years. E-Trade, for example, saw new accounts jump 169% in the first quarter over last year.

But surveys show that many customers are unhappy with e-broker service and the way grievances are handled. Indeed, complaints about losses due to Web site outages and jammed phone lines have intensified in the past year.

Surveys by J.D. Power & Associates show that one in 10 online investors has lodged a "serious" complaint against an online broker. A January survey found that in 85% of cases, investors were dissatisfied with how firms resolved the issues.

Though that was better than the 90% in an August 1999 survey, "you still have to say it's a real negative for the industry," said Nancy Salk, J.D. Power's director of financial-services research.

"It's an insult to online investors that [firms] have marketed and promoted their services as much as they have, [but] not created the infrastructure and the systems and staffed customer service properly to serve investors," said Jaime Punishill, an analyst at Forrester Research in Cambridge, Mass.

E-Trade ranks below the industry average in overall customer satisfaction, according to J.D. Power.

In an investor poll conducted by the research firm Gomez Advisors, E-Trade garnered the highest e-broker rating. But it ranked 10th in "customer confidence," a component of the overall rating that measures such things as Web site reliability and phone response time.

In a memo to the NASD outlining "corrective" measures it is taking, E-Trade said it now tracks all complaints electronically, prepares a daily "progress report" updating the status of grievances, and responds to NASD queries within two weeks.

"We have dramatically improved and enhanced our service," said Patrick Di Chiro, an E-Trade spokesman.

According to its memo, E-Trade as of July received one complaint for every 6,497 completed trades. Based on its average of 229,000 daily trades in the first quarter, E-Trade gets about 35 complaints a day. More recent figures were not available.

Some analysts have defended e-brokers' customer service, saying it was impossible for the firms to anticipate the industry's huge growth. Also, it takes time to give employees the specialized broker licensing and technological training needed to handle calls, experts say.

"It's not like a phone bank for Time-Life Books where you can just plug in a few people," said Dan Burke, a Gomez senior analyst.

Though "E-Trade's focus in recent times has clearly been in attracting and opening new accounts," the firm lately has made a concerted effort to improve customer service, Salk said.


Gains on Hold?

Despite a booming business, E-Trade Group's shares have been trading just above their 52-week low. Monthly closes and latest on Nasdaq:


Tuesday: $19.63, down $1.19


Source: Bloomberg News

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