The brokerage industry has suffered more than its fair share of smackdowns lately. But for one online brokerage firm, the future is bright -- bright orange.
ShareBuilder, one of the first online brokers to target small investors, was acquired by the ING Direct unit of Netherlands-based ING Groep (NYSE: ING ) last November. Since then, the broker has seen assets increase dramatically, according to ING Direct COO Jim Kelly.
Avoiding the subprime drop
Many brokers have had problems lately, as subprime woes worked their way through the mortgage industry. Large brokers such as Bear Stearns (NYSE: BSC ) and Merrill Lynch (NYSE: MER ) have named new CEOs after reporting losses from subprime. E*Trade's (Nasdaq: ETFC ) mortgage exposure required a large capital infusion and led some to believe a merger with rival TD AMERITRADE (Nasdaq: AMTD ) or Charles Schwab (Nasdaq: SCHW ) was in the cards.
Yet ING Direct's acquisition of ShareBuilder doesn't appear motivated by the credit crunch. Instead, the move is one that all banks look to make -- an attempt to retain and grow assets.
A natural fit
For years, ING Direct has appealed to savers of all account sizes with its Orange Savings Account. The online bank pays higher interest rates than most of its brick-and-mortar counterparts. And although it no longer pays the highest rates available on the Internet -- the banking units of E*Trade and Countrywide Financial (NYSE: CFC ) pay more than 1% more than ING's today -- the user experience is designed to appeal to savers.
ShareBuilder has a similar focus on the brokerage side. With its low-cost packages that let investors buy fractional shares of stocks and ETFs, beginning investors have found ShareBuilder to be extremely useful in putting together a portfolio of modest means.
Of course, ING Direct doesn't expect those customers to stay small forever. With real-time stock and options trading now available on ShareBuilder, the broker clearly wants to appeal to expert investors. And as small investors continue with automatic investment plans, their accounts should build, making them logical customers for other financial products.
Meanwhile, the move is timely for ING Direct's banking services. With the Fed's aggressive cutting of short-term interest rates, banks will face the same challenges trying to keep deposits close to what they were in the early 2000s, when Treasury Bill rates fell below 1%.
Integrating ShareBuilder will make it much easier for customers who seek alternatives to low-yielding savings accounts to invest, without taking assets outside the company. Kelly saw ShareBuilder's assets double in December and expects a continued ramp-up as the company's marketing campaign takes hold. Plans to offer mutual funds and retirement-specific products will put another arrow in ING Direct's quiver.
Only time will tell how successful the ING Direct/ShareBuilder combination becomes. From initial signs and feedback, however, it seems like a winning move for companies and customers alike.
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