Harrisdirect, in its second major deal in a little over a year, said Friday that it had agreed to buy 150,000 self-directed online client accounts from Morgan Stanley Dean Witter & Co. for $106 million.
The direct investing arm of Bank of Montreal's Harris Bank has been buying up online investing businesses - notably CSFBdirect from Credit Suisse First Boston for $520 million in February - while others have been pulling back because of the market downturn. Its plan is to cross-sell those customers a more comprehensive retail package.
Harrisdirect president and chief executive Bruce Schwenger said that, as others "refocus on their core businesses, it creates terrific opportunities for us. We're moving toward our core business, which is retail."
Morgan Stanley said in a press statement Friday that the deal, which is expected to close in two or three months, reflects the New York company's efforts to focus more on "personal customized advice for clients" and that it only affects those accounts that invest exclusively online without a financial adviser's interaction. It said it would continue to offer online services to full-service clients through ClientServ, which clients can access after they open an account with a financial adviser.
Mark Constant, an analyst at Lehman Brothers, said online brokerage accounts don't fit the full-service "advice" model traditional investment banking firms have typically used. These firms bought online operations to retain customers and manage customer perception, he said.
But now that "some of that hype has eroded," Mr. Constant said, investment banks are returning to their original models.
Harrisdirect, which has been in business since 1983, would have more than 700,000 direct investing clients upon completing the Morgan Stanley deal. It has another 300,000 online customers in Canada and about $38 billion of assets under administration in all of North America.
Mr. Schwenger said Harrisdirect would pitch the Morgan Stanley clients private banking, proprietary mutual funds, and other wealth management offerings.
He said the deal should be profitable for Harrisdirect even if none the cross-selling opportunities pan out.
Meanwhile, Harrisdirect will continue to scout opportunities as consolidation continues in the online business. But "there aren't that many names left," Mr. Schwenger said.
He said Harrisdirect finished the integration of CSFBdirect's client base a couple of weeks ago.
