New York's state attorney general, Eliot Spitzer, announced on Monday that the US brokerage industry's trade body planned to spend $500,000 on an advertising campaign to educate customers about the pitfalls of online trading.
The move came as TD Waterhouse Group became the latest online brokerage house to cross the Atlantic to the UK, following in the wake of E*Trade, Charles Schwab and DLJDirect, which have all opened shop in London since the summer.
Waterhouse hopes it can emulate its US success internationally and has earmarked $100 million to fuel expansion.
But on launching the Securities Industry Association's campaign, state attorney general Spitzer criticised current advertising campaigns undertaken by online brokerages, which, in his view, claimed that: "Investors have access to both instant trades and instant wealth, neither of which is true".
The main bone of contention, he attested, was that trades were not as instantaneous as they were portrayed to be in adverts and brokerage systems were subject to crashes, especially when volume was high.
On a federal level, the Securities and Exchange Commission (SEC), which has powers of oversight in the financial world, has also issued a report calling for online brokerages to clean up their act.
The report indicated that the SEC received hundreds of complaints in the first nine months of this year. A total of 504 came from investors who had difficulty accessing their accounts, 393 were from customers having problems with the order processing process and 247 were complaining about incorrect order processing.
As a result, the SEC report issued a series of recommendations, which included providing "plain English information about execution quality" to customers and the plain English disclosure of risks related to systems delays or outages. It also required the brokerages' computers to have "sufficient operational capability."
Internet research firm, Gomez Advisors, and polling specialists, Harris Interactive, predict there could be as many as 8.6 million online investors by the start of the next year.
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