Not surprisingly, the “b” word sent E*TRADE’s shares plunging on Monday and no doubt struck fear in the hearts of hundreds of thousands of customers. The firm made a modest effort that day to shore up customer confidence, posting a statement by President and COO Jarrett Lilien to the customer website. He described this as a “challenging time for the financial services industry” but reassured clients that E*TRADE is “well capitalized by regulatory standards... (and) could absorb an immediate write down in excess of $1 billion and still remain well capitalized.” He went on to hedge his bets, though, saying that “(n)obody knows for certain what the ultimate impact will be from these markets, but it is our expectation that news in the market will get worse before it gets better and, armed with these expectations, we are taking prudent measures to effectively manage the company's balance sheet.” This is hardly a reassuring message, though we understand why the firm would stick to a conservative line here.
 
As it happens, while the E*TRADE situation has unfolded, we’ve been busy conducting research into the account opening process at several leading brokerages. One of the firms we are reviewing is Fidelity, which we called a few times on Monday to discuss opening an account, and mentioned that we had a few accounts at E*TRADE. We spoke to three different reps, each of whom told us the same story: E*TRADE customers were "flooding" Fidelity’s call center looking to open an account and transfer their assets to the firm. One rep suggested we go to a nearby branch early Tuesday morning to speed up the TOA process and “beat the rush” if we were serious about opening the account. He hinted that there was a real possibility that E*TRADE customers would be lining up at Fidelity branches to open accounts and deposit funds the next morning. We decided to look into this and visited a branch in midtown this morning. There weren’t any lines (or customers, for that matter) but the branch reps corroborated what the phone reps told us the day before: E*TRADE customers were keeping Fidelity reps very busy.
 
While nobody likes to kick a competitor when they're down, the reality is E*TRADE’s debacle is likely to be a boon to the firm’s big competitors, like Charles Schwab, Fidelity, Scottrade and TD Ameritrade. It reminds us once again of the importance of providing a pain-free account opening experience, which sets the stage for a long-term client relationship. Best practices to consider for this process include:

Fidelity does all of these things well. While the phone reps wouldn’t open accounts over the phone, they were willing to walk us through the online application and followed up by phone to ensure we had the information we needed.