Scudder's brokerage unit | Investment Executive

Scudder’s brokerage unit

<I>DLJdirect taking over</i><br>

By: IE Staff
December 1, 1999 December 1, 1999
10:21

(December 1) – “For mutual-fund
companies looking to expand into
the discount securities-brokerage
business, here’s some advice:
Don’t bother,” report Rebecvca
Buckman and Pui-Wing Tam in
today’s Wall Street Journal.

“Increasing competition on the
Internet — as well as soaring
advertising and technology costs —
means traditional fund companies
are having a harder time operating
online brokerages, analysts say.
Indeed, today, Scudder Kemper
Investments, a unit of Swiss
insurance company Zurich Group,
is expected to announce that it is
folding its tiny brokerage business
into that of established Web
broker DLJdirect Inc.,
essentially acknowledging that it
doesn’t have the scale or resources
to build up its own brokerage
operation.

“Through the strategic alliance,
DLJdirect, based in Jersey City,
N.J., will provide brokerage
services to customers of Scudder’s
three-year-old brokerage business
starting Feb. 5, officials of both
companies said. DLJdirect, which is
majority-owned by investment
bank Donaldson, Lufkin & Jenrette
Inc., will get about 15,000 new
accounts and roughly $1.5 billion
in assets. DLJdirect currently has
just over 300,000 active accounts
in the U.S.

“The marriage pairs up two
companies at very different spots
on the investing spectrum. Scudder
Kemper, New York, is a white-shoe,
old-line money-management firm that
has long espoused the virtues of
long-term investing. DLJdirect,
which tries to cater to wealthier,
less frenetic investors than many
online brokerages, isn’t exactly
a haven for quick-fingered day
traders. But the firm’s snazzy
Web site does allow people to buy
and sell stocks for short-term
gains to their heart’s content
for a base, $20 commission.

“While mutual-funds behemoth
Fidelity Investments has
expanded its securities brokerage
firm into a towering business,
others haven’t been as successful,
and more of such pairings could be
on the way. ‘More and more fund
companies — especially smaller-tier
players — will look for alliances,
because they can’t do brokerages by
themselves,’ said Geoff Bobroff,
an independent fund analyst in East
Greenwich, R.I.

“Behind the pairings: the
staggering cost of doing business.
Lehman Brothers
predicts that the eight largest
Internet brokers will spend $1.2
billion on marketing in the
coming fiscal year. In an interview,
Bill Glavin, a Scudder Kemper
managing director and chief
operating officer of the company’s
U.S. direct-mutual-funds business,
acknowledged, ‘Faced with
a substantial investment of several
million dollars to remain
competitive, we asked ourselves if
there was a better way to” offer
brokerage services to clients, and
the pact was the answer. “We’re
saying that our core competency
isn’t a discount brokerage.’