Small investors shun big brokers to do it themselves

Thu Jan 22, 2009 8:18am EST
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By Daniel Trotta

NEW YORK (Reuters) - As Wall Street imploded, Mark Posnick took his retirement fund out of Lehman Brothers and invested it with an online broker.

Now he's his own money manager, joining a new wave of investors who have lost confidence in traditional brokers whose fees and commission became all the more glaring during the bear market of 2008.

"The (Lehman) bankruptcy was quite an ordeal to say the least," said Posnick, 69, a retired mortgage banker who now trades with optionsXpress. He said his confidence was shaken "not only in them but also in the entire concept of entrusting others to be fiduciaries on your behalf and giving you advice."

Customers are choosing alternatives to Wall Street banks that charge for financial advice and executing trades, sometimes with opaque pricing on fees and commissions.

Many former wire house bankers have left their Wall Street jobs since the turbulence of last fall and have taken clients with them, creating investment advisory boutiques that direct new trades to online and discount brokers such as Charles Schwab, TD Ameritrade, E*Trade and the privately held Scottrade.

"There's a massive trend toward self-directed investing. We've grown 300 percent month on month and January isn't even over yet," said Keith McCullough, CEO of Research Edge, a six-month-old firm that says it wants to democratize market research services. "I think it's a function of the trust lost on Wall Street."

Retail investors are culling information from many sources and making the trades themselves, eliminating fears about wobbly banks or potential swindlers as typified by Bernard Madoff, accused of engineering a $50 billion Ponzi scheme.

TD Ameritrade on Tuesday reported a 23 percent fall in quarterly profit, largely a result of the bear market, but in the crucial area of net new assets it added $7.8 billion, triple the amount in the previous quarter.   Continued...