Peter Breen Interview



"When you think about the ability to interact with the stock market at just $2.99, it's a pretty compelling proposition for somebody who is a self-directed investor."

A relatively new start-up is stepping up against the established names in online investing: E*Trade, Ameritrade, Fidelity, and DLJdirect to name a few. is targeting the growing ranks of online investors - young couples investing for retirement and savvy do-it-yourself investors who like the ease and simplicity of the services the company offers.

"My long-term goal is to make Charles Schwab not sleep at night," CEO Peter Breen recently told eCOMMERCE BUSINESS., launched in November of 1999, stresses simplicity and strives to make its site easily accessible to all audiences. It allows investors to open an account with as little as $20 and charges a commission of $2.99 per trade. offers customers a selection of over 3,000 stocks, up from its initial offering of 1,200.'s colorful CEO Peter Breen recently sat down to chat with Associate Editor John Spence to discuss his company's unique business model.

John Spence: Do you offer ready-made e-folios or do you encourage people to design their own? A lot of the online investment sites have questionnaires that people can fill out and get recommended portfolios. Is that a service that you offer?

Peter Breen: No, we don't do that. We are going to be rolling out in the coming weeks a service where you're going to be able to with one click to buy our top ten held companies. Analytics is really nothing more than opinions, so if we ever started recommending portfolios we want to provide a very credible analytical service. I've seen some of the sites that put together questionnaires. I really don't care how detailed you get, it doesn't necessarily make portfolio selections for that person ideal. You'll probably see us, over the coming months, get into sector-type baskets. A lot of our investors feel comfortable in strength and in numbers. But there's also a large diversification of our top ten holdings. It ranges anywhere from the General Electrics of the world to the Ciscos of the world. I think it's diversified enough where people would feel comfortable owning a group of stocks like that. And again, the beauty of it is there's no analytics involved - the top ten is based on facts. And we have 140,000 customers, so it's a pretty good sampling of what our customers are thinking.

JS: Can you tell me how much in assets people have invested through

PB: We don't release asset numbers of our customers, really for two reasons. One, we're not an acquisition play. And more importantly, our customers add to their portfolio every month. So it's an interesting model, because for the very first time on Wall Street, we've taken what's traditionally been a transactional business and given it an annuity flavor. Our customers put in X amount of dollars and add to it every single month. Seventy percent of our customers give us direct access to their checking accounts. So it's a very powerful model and it's a great asset-gapper and asset-accumulator, and also allows people to grow their portfolios in a relatively painless manner.

JS: How many stocks can investors choose from on your site?

PB: There are 3,000 securities on our site that are available, but even with 140,000 customers, we on ly have positions in about 2,500 of them. Our customers tend to flock around the big-name companies. I would say our customers like the most traditional of companies. There are no small caps, there are no pink sheets, and there are no IPOs.

JS: What kind of target audience are you going after? Is it a different audience than, for example, might pursue? Are you actively pursuing the lower-end market?

PB: You know, it's funny, we came out with a couple of different caveats - people tend to think we're going after the lower echelon. We have a $20 minimum investment, and a $2.99 commission schedule. The truth lies somewhere in between. We're actually getting a lot of very experienced and very seasoned investors that happen to prefer our do-it-yourself methodology. If you look at the average online brokerage account, the average trades per customer per quarter are only around four. So despite the hype of the day trader, they aren't behaving in that manner. So we always thought that there was kind of a "buy-and-holder" in everyone, and I think we're finding out that that's true. We're getting a tremendous number of accounts that are indicating that they have other online brokerage accounts. We're also getting some larger chunks of money, some real asset-managed money, where people want to come in and set up a disciplined portfolio. They want to park some money maybe in one of our Goldman Sachs mutual funds, and "drip," if you will, or dollar-cost average it over a very large portfolio. When you think about the ability to interact with the stock market at just $2.99, it's a pretty compelling proposition for somebody who is a self-directed investor. So we're finding the assets are a little bigger than what we anticipated they would be. Probably one of the reasons we're at 3,000 companies now - we started with only 1,200 - is that our customer base requested it. And we're going to be getting into a lot of different services and a lot of different features that our customers are seeking as well. We're extremely customer-centric. We've listened to our customers on a regular basis - we survey them on a regular basis. We want to make sure that we are making their investment experience as valuable as it can be for them. So over the next four to five weeks, you're going to see some really, really cool stuff rolled out at this place.

JS: Are you planning on introducing more educational and interactive features for your customers?

PB: A far as educational content is concerned, I think probably would rank pretty high based on the simplicity and educational content that's available on the site. We're big believers in the philosophy of buy and hold, hence the name. But we also give people the opportunity to understand why that works. When you're looking at quotes and charts, that's just a commodity, anybody can offer that. We cater specifically to investment clubs, which no other brokerage firm does. As far as content, one of our writers is Joyce Roberson, a single mom. She writes an issue for us, it's called the "Mom Chronicles." It's one of our most widely-read issues. And it's so funny because she's a single woman who's just giving an overview of what her investing experience has been. And it's great. I find it interesting that the general public has this fear of admitting that they don't understand Wall Street. Walk up to somebody on the street or the next time you're engaged in a conversation, and ask them if they know the difference between a straddle and a spread with options. And they'll nod knowingly, like - Who doesn't know that? We want to change that to make it where people don't feel intimidated. It's okay not to know. I'd rather educate people than have them invest in something that they probably shouldn't be getting themselves into.

JS: In a recent article by Charles A. Jaffe, he pointed out that a low-income investor may only be able to invest $50 a month. And if you take into account the $2.99 fee per purchase, that works out to an almost six percent expense ratio, which is higher than a lot of actively-managed mutual funds. So does this make your service practical for everyday investors who don't have large chunks of capital to invest?

PB: I'll answer that twofold. Our customers navigate an exceptional order for us, because our customers usually keep their commission rate down to about the 0.5% per trade level. But the flipside of that is: find me someplace else where that investor can go with $50. Our philosophy has always been this - start small and think big. And if somebody can only squirrel away $50 a month or maybe even just $50 a quarter, up until this point they've been completely blocked from entry into the securities market. I think our customers are very smart. They're very in tune with how much they're paying on a percentage basis. To add credence to that, you can hop on's and Motley Fool's discussion boards and watch how people talk and react to the concepts. We don't encourage people to just invest $20. We allow people to deposit $20 with us each month and put it in a Goldman Sachs money market. They can keep depositing money until they get to $100 or $200, and then they can execute. We're very cognizant of keeping commissions at a relatively low percentage, but I still think it's wonderful to be able to make the market accessible to people who just don't have the means otherwise.

JS: On your site I read a lot about the evidence of the power of compounding. Can you kind of walk me through the process of reinvesting dividends automatically using your E-ZVest feature?

PB: Reinvesting dividends and dollar-cost averaging are two different scenarios. So you don't have to be part of E-ZVest to reinvest dividends. When the dividends are paid on a company, instead of receiving the cash, we simply take that amount of dividend cash that's payable to Securities Corp. We're the holder of the stock, as any brokerage firm would be. We take that money, go to the market and buy shares, and then pro rata them back to your account again. A lot of people look at dividend reinvestment as probably the most passive approach to dollar-cost averaging. But it's not really dollar-cost averaging - it is an enhancement to the process. So what we did was create E-ZVest, whereby you can instruct to take money out of your checking, your savings, or even your Goldman Sachs money market funds in our account. Then you can say, "Every single month, I want you to buy these particular companies." And we took it one step further, because that's how the open-end mutual fund system works on a monthly basis. We now allow people to E-ZVest weekly, monthly, or quarterly. So what we're trying to get people to do is almost create an environment in their stock brokerage account that is similar to that of their own 401(k). And the philosophy has always been - if you're setting up a custodial account for your child, it's a whole lot easier to pay for college $100 a month at a time than to try to come up with a $20,000 lump sum. We just encourage parents to start early. If it's for your own retirement, then obviously the earlier you start, the better off you'll be. How old are you, for instance?

JS: Let's say I'm 26.

PB: I would venture to say that you will really kick yourself later if you don't start squirreling away $200 every month now.

JS: I agree.

PB: And the problem is, on Wall Street, hindsight in 20/20. We all know what we should have done. Now has created an environment that makes it difficult to ignore. You come to us, you structure a portfolio that meets your objectives, and you just put it on autopilot. You say, "Here's $200 a month, please apply it to my account, every single month." And, unlike other services that will ping your checking account, we send you a confirmation by e-mail every single month. So it's not as if you're going to bounce a check because you forgot to take a deduction out. You get an e-mail that says, Hey, remember you told us to take that $200 out? Well we did, and this is what we did with it. Congratulations, you own more of that stock now. We've made the record keeping exceptionally easy. I have to be willing to bet that Charles Schwab probably has a war room of Ph.D.s trying to make their site easy. The fact is - we've really cut to the essence, we've cut to the bare minimums of what investing is all about, and have brought it to the marketplace.

JS: How do you guarantee that online transactions are secure? That would be a natural concern for anybody who's investing online, especially someone who is new to the concept.

PB: All transactions are secure through, because we're encrypted and on secure servers. But I think the entire industry, in general, has done a phenomenal job of policing this. Our claim to fame when we launched this was that we were the 215th online brokerage firm. We're sitting here 10 months later as the 12th-largest. But we had a lot of people to learn from, and we saw a lot of the mistakes that were made very early on. We hired a technology team that was absolutely brilliant. The gentleman we hired to lead that team used to be the Chief Technology Officer (CTO) of the Gartner Group. Prior to that, he was CTO of Republic National Bank. We saw what other people had done and we took the best of all worlds and combined it. I think the industry in general, thanks to the regulated nature of the business, has done a phenomenal job of policing and making sure that it's all very secure.