Online share dealers in fight for survival as Schwab hits 'delete'

It's not just shares that are suffering at the moment, but also the companies that trade them. As investors steer clear of the stock market, many online share-dealing services have been hit. At the start of the month Charles Schwab, one of the world's largest online stockbrokers, announced it was retreating from the UK and selling its operation to Barclays Stockbrokers. With over 35 other services available, a further shakeout in the market is expected.

"I don't think consolidation's finished," says Angus Rigby, vice-president at online broker TD Waterhouse. "No one's making any money at the moment, so it's a matter of how long they can keep going."

Schwab customers won't see any changes to their service for six to nine months until the full integration has taken place. And not surprisingly, Barclays is urging them not to transfer to a different broker. "We've made a commitment that there'll be no price rises and we believe that the service will ultimately be better," says Emma Rees, a spokeswoman for the business. "It's a matter of 'trust us and wait and see'."

The services offered by online share dealers vary, and Barclays Stockbrokers believes the main advantages of the merged service will be its in-house analysts, which provide lots of research material for inves- tors, coupled with Schwab's website. But what are other players doing to secure their survival?

"Most of those who have come into this field over the last three or four years have seen transactions as the key," says Gavin Oldham, chief executive of The Share Centre, "rather than looking after the investors and their portfolios." Mr Oldham says his company's business model is based on long-lasting relationships, which enable it to cope well under all circumstances. The Share Centre offers an advisory service, unlike most online stockbrokers. Certainly, those that are purely execution-only will have suffered most over the last few years as trading levels have fallen.

TD Waterhouse sees the key to survival as diversification and acquisition. The company has bought Yorkshare, Dealwise, DLJ Direct and 50 per cent of NatWest Stockbrokers. It has also looked to expand its product range. As well as offering share-dealing and investment products, it announced its move into retail banking at the end of last month.

E*Trade has pursued a similar strategy in the US, but not in Europe where, far from diversifying, it has narrowed its horizons. "We've been very disciplined and focused on the active trader market – that's what's saving us right now," says Mathias Helleu, vice-president of E*Trade. "When things get better, we'll go back to the more general mass-affluent market."

Comdirect's strategy is different again. "We've got a very attractive pricing model so have been able to attract new customers," says a spokes- man, adding that Comdirect doubled its customer numbers last year.

In comparing online share-dealing services, investors tend to look at the costs and research tools available, making the decision about which to go with from there. But you should look beyond the headline transaction cost when com- paring prices, as there may be extras such as management and administration fees.