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Charles Schwab

Online Brokers Gain Assets At Wirehouses' Expense

NEW YORK -(Dow Jones)- As wirehouse brokerage firms narrow their focus to the truly wealthy, assets from some "mass affluent" clients are migrating to online brokers.

Charles Schwab Corp. (SCHW) and TD Ameritrade Holding Corp. (AMTD) added a combined $30 billion in net new assets this quarter, boosting their quarterly earnings.

They may be benefiting from a shift in how the brokerage industry works. Traditional brokers are shifting from making money on transactions to a fee- based business model, making wealthier clients particularly desirable.

That leaves opportunities for the online brokers, who may be able to snare some of the smaller clients' assets - or, on occasion, the clients themselves.

"As the full-service firms go higher and higher upstream, there is a bigger segment of the market (with) significant assets that aren't as attractive" to the big brokerage firms, said James McGovern, a vice president at Corporate Insight, a financial services research and consulting firm. "That's where companies like Fidelity, Schwab, or Ameritrade can attract clients."

On Wednesday, Charles Schwab posted second-quarter earnings slightly ahead of analysts' estimates. The San Francisco online broker added $26 billion in new assets in the quarter. Schwab said its total client assets rose 1% over the previous year, to $1.4 trillion, as it added $10 billion in net new assets in June alone.

Rival TD Ameritrade, which is transforming its business focus from retail trading to asset gathering, added $4 billion in net new assets in the second quarter, for a year-to-date increase of $20 billion. The company's total client assets were $309.2 billion as of June 30 - a 4% increase year-over-year.

"We are seeing our clients bring more of their money to us," said TD Ameritrade Chief Executive Joe Moglia during a Thursday conference call with analysts. "That is probably coming from full-commission firms."

For TD Ameritrade, its asset-gathering strategy means targeting mass affluent investors, which it defines to include those with between $100,000 and $1 million in investable assets.

"I just think the industry itself - Schwab, Fidelity, Ameritrade, and even E* Trade (ETFC) - is improving" its products, said FBR Capital Markets analyst Matt Snowling.

He added that a recent push toward more banking and portfolio allocation services has made the online brokers more competitive with big brokerage firms.

"They are making it easier and easier to aggregate more of your assets in one place," he said.

Big securities firms insist they aren't ignoring these smaller clients. Citigroup Inc.'s (C) Smith Barney unit has a platform for what it calls emerging affluent clients - those with less than $500,000 in investable assets.

The service, myFi, which is short for "My Financial Life," offers checking accounts, debt consolidation, and financial advice.

UBS Wealth Management US, a unit of UBS AG (UBS), also has in recent months set up an Investment Center where financial advisors provide services over the phone for clients who have $1,000 to $250,000 in assets.

Analysts say brokerage firms are still at the top of the competitive landscape.

"What you aren't seeing is somebody at Merrill Lynch or Morgan Stanley saying I'm going to move my business and take it to Ameritrade," said Mike Carrier, a stock analyst at UBS.

However, while the clients themselves may not be heading to the likes of TD Ameritrade, some of their money at the margin is going there.

At Schwab, its leading position in servicing registered investment advisors gives it the ability to add not only assets, but also new clients who use financial advisors.

"Right now, because of the difficulties in the capital markets with the wirehouses, I think Schwab is getting more of their assets on the retail side and on the RIA side, Carrier said.

TD Ameritrade hopes to pick up some of those clients as well. Its purchase of TD Waterhouse Group Inc. in 2006 gave the company access to a national network of registered investment advisors.

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