You've read about the threats the Internet poses for your business and seen cover stories predicting the death of the full-service broker. You've probably even experienced firsthand a beating over the prices you charge compared to Internet brokers. Yet the fact is, the Internet isn't killing full service. Information and education are the key things that attract clients.

Myth1 : Online brokers are stealing full-service brokers' customers.

The experts say no one really knows where online customers are coming from.

E*Trade counts an active account as anyone who's traded once in the past six months or has assets with the firm, according to research from U.S. Bancorp Piper Jaffray. But there's no industry standard for defining an active account.

Despite the rapid account growth online brokers have had in the past two years, U.S. Bancorp Piper Jaffray said in a report this past fall that online brokers have only penetrated 10 percent of the retail investor market.

A lot of online broker customers may just be migrating from traditional discounters.

Cerulli Associates, a Boston-based consulting and research firm, concludes that at the end of 1998 more than half of the total number of online accounts were discounter conversions.

According to a Dow Jones Newswires investor study, the majority of the increase in online transactions is coming from new investors entering the online marketplace (see "Most Investors Won't Go Online," left).

But this year an "increasing rate" of full-service customers are moving assets to online brokers, says John Payne, a Cerulli consultant. That conclusion comes from talking with online brokerage executives, not from looking at data, Payne adds.

Still, Cerulli stands by its end-of-the-year prediction that for the next few years, online brokers will find their greatest battle for growth within the existing discount brokerage customer base of about 15 million accounts.

It may be that online brokers only get a piece of full-service clients' money. Forrester Research of Cambridge, Mass., polled 10,000 online investors and found 3,500 of them also had a full-service relationship. The Dow Jones Newswires study uncovered that 30 percent of online traders are taking their broker's advice and transacting some trades online.

But full-service clients who cheat aren't the discounters' target. That's why online brokers aren't pouring marketing dollars into luring full-service clients.

"E*Trade executives say that 10 percent of their customer base accounts for 75 percent of trading volume," Payne says. "E*Trade now is concentrating on placing technology in the hands of its active traders to crank up the trading volume."

A study released in June by Dow Jones Newswires found that 70 percent of those not currently investing online aren't likely to do so in the future. And despite a doubling from last year of the percentage of investors conducting transactions online-now 34 percent-the majority of the growth is coming from new investors entering the online marketplace.

The study was conducted in April for Dow Jones by J.D. Power and Associates, and is based on research of investors with portfolios over 100,000 dollars, excluding 401(k)s.

Apparently, investors aren't getting what they really need from purely online providers. "Information and education is the single most important factor contributing to all investors' satisfaction levels, well above customer service, fees and commissions and even portfolio performance," says James Donoghue, vice president of sales and marketing at Dow Jones Newswires.

Myth 2: No-load funds are taking over.

It's true no-load fund assets have grown faster than load fund assets. >From 1986 to 1996, no-load assets have grown 29 percent a year compared with 16 percent a year for load funds, says Chip Roame, head of Tiburon Strategic Advisors, a financial services consulting firm in Tiburon, Calif. But no-load fund companies have just 40 percent of mutual fund market share, says Financial Research Corp., a Boston-based fund-industry research firm. That market share hasn't budged throughout the 1990s.

"The move from load funds to no-loads is a move to independent financial advisers," Roame says. About 62 percent of Charles Schwab's OneSource business comes from independent financial advisers, he says.

Financial Research Corp. found in a recent study that direct sales of mutual funds have gone down every year since 1990. That year direct sales made up one-third of all mutual fund sales. In 1998, they had dropped to only 18 percent. Direct mutual fund sales will drop to 15 percent of total fund sales within the next few years and stay there, the research firm concludes.

"There's a move to advice and guidance as the baby boomer generation gains wealth," says Jeanne Sullivan, an analyst with Financial Research Corp. "Brokers are just too big to go away."

Myth 3: The traditional stockbroker is history.

The "dying" profession is booming. There were 594,702 registered representatives as of March 1999, compared with 417,048 in 1990. Over the past decade, the average broker's production has increased every year except 1994. In 1998, average gross commissions and fees brought in by retail reps increased 11 percent to 430,072 dollars.

Serious money gravitates to full-service brokers. A Dalbar survey in 1996 found nearly 90 percent of consumers say they need a financial adviser for portfolios of 100,000 dollars or more.

"We feel you may see more multiple brokerage relationships with people hitting 100,000 dollars to 200,000 dollars in assets," Sullivan says. "We've seen the more assets you get, the more likely you are to maintain some money with a discounter and some with a full-service adviser."

Full-service brokers won't have a problem with clients directing a portion of their business to discounters, predicts Louis Harvey, president of Dalbar in Boston. The number of households now receiving help in growing and protecting their wealth stands at about 11 million, he says. In 15 years, that number will stand at 60 million.

Asset-based fees will drive "virtually all" of the full-service business, according to Harvey, as price wars will force out all but three or four large discounters adept at high-volume trading. "The financial professional of tomorrow will consider doing a stock transaction like washing windows," Harvey says.

Myth 4: Investors save a lot of money using online brokers.

The top 10 online brokers charge an average commission of 15 dollars 75 cents, reports Credit Suisse First Boston. A full-service firm charges a minimum of 50 dollars.

But that's not all there is to saving money. Investors face a trade-off for those low commissions, say electronic commerce analysts. They often must pay high margin loan rates, get poor access to high-quality IPOs and receive below market rates on cash.

The average money fund paid 5.04 percent in 1998, reports IBC Financial Data. Datek paid 3.5 percent; Fidelity paid 0.949 percent for amounts up to 1,000 dollars and 3.358 percent for 5,000 dollars; and Ameritrade paid 2 percent. Brown & Co. and Suretrade paid slightly below-market rates, IBC says.

Investors are also vulnerable to losing money when trading systems fail. This year as of mid-summer, both E*Trade and Schwab's Web sites had three such outages.

Low trading costs don't mean much when they spur investors to trade more often. Online brokers now are trying to increase trading volume from current customers, Payne says. "They're looking for ways to place new technology in the hands of active traders to boost their trading."

The Dallas Morning News reported in April how one investor used to trade stocks once or twice a week with a traditional discounter, at 50 dollars a pop. He switched to E*Trade and 14 dollars and 95 cents trades. Eighteen months later, he now makes close to 20 trades a week, paying almost 900 dollars a month in commissions. His online trading habit earned him a 20 percent return in 1998, a year that saw a 28 percent return for the S&P.

"The level of speculation [at online brokers] has risen dramatically," states a research report published early this year by New York-based Putnam Lovell de Guardiola & Thornton, an investment banking firm specializing in financial services companies. "We believe individual casualties will increase, placing further regulatory demands on the online brokerage industry."

The SEC says complaints about online brokers grew 300 percent in 1998.

Myth 5: Discounters account for a major share of trades.

One in every seven retail stock trades comes from an online broker, according to research from Credit Suisse First Boston. In the first quarter of 1999, online brokers saw a 49 percent increase in average daily trades, according to U.S. Bancorp Piper Jaffray.

But no report of discounters' average daily trading activity measures pure equities trades, says Dean Eberling, senior analyst with Putnam Lovell de Guardiola & Thornton. The numbers include mutual funds, options and derivatives activity.

Trade activity is growing fast among discounters because "the actual price of a trade has collapsed," Eberling says. "Discounters must process more trades just to stay even." He pegs discounter market share-online and traditional combined-at 18 percent to 22 percent.

Remember though, that trades from full-service advisers who are affiliated with firms like Schwab, Fidelity and Waterhouse are reflected in discounter trading activity numbers, Roame notes.

One thing that isn't growing is discounters' market share of trading revenue. It's historically ranged between 14 percent and 16 percent, Eberling says. With the cost of account acquisition going up, it's going to be more difficult for discounters to even maintain that level, he says.

Myth 6: Discounters are taking assets from full-service brokers.

That's easy to believe if you're looking at how fast online brokers have been adding accounts. Cerulli Associates reports 7.3 million online accounts in 1998, up 65 percent from 1997. Gomez Advisors of Lincoln, Mass., says online accounts should grow to 13.5 million by the end of 2000. Credit Suisse First Boston estimates that online accounts now constitute 20 percent of all brokerage accounts.

Assets are a different story. Discount brokers-online and traditional-altogether have 600 dollars to 700 billion dollars. "The whole discount industry is half the size of Merrill Lynch," Roame says. "Online brokers who only operate online have assets the size of Dain Rauscher." Half of Charles Schwab's assets don't even come from do-it-yourself investors-they come from independent financial advisers who direct their clients' stock trades through Schwab as a back office provider, Roame adds.

The average wirehouse account tops 100,000 dollars, while traditional discounters average 60,000 dollars and online brokers 25,000 dollars, states a March Cerulli Associates report. "For many full-service brokers, these account balances are too low to be attractive," the report states.

New accounts at Morgan Stanley Dean Witter grew 35 percent in 1998, while Merrill Lynch brought in 327 million dollars in assets daily, states the Cerulli report. "It seems clear the Internet as a distribution channel will not lead to the demise of intermediary channels," the Cerulli report concludes. "Rather, as VCRs were for the movie industry, we expect the Internet tec hnologies to help propel savvy financial firms to new heights."

Avi Nachmani, a consultant at Strategic Insight in New York, agrees that full-service firms are poised to gather even more assets. "Merrill Lynch's move into online discounting has created a strong magnet for investors to work with them," he says. "They will have a platform to allow more people to see Merrill Lynch as their primary financial relationship. The full-service move online will only create a bigger market for investing."

Myth 7: Discounters make their profits from ticket charges.

Like any brokerage firm, interest income is a key revenue source for the discounters. Ameritrade's net interest income accounts for 25 percent to 30 percent of net revenues, analysts say. E*Trade reports about 23 percent of 1998 revenues came from net interest income, a 121 percent increase from 1997.

Payment for order flow also adds a good boost to trade revenue. E*Trade reported that 16 percent of its net transaction revenues in 1998 came from payment for order flow. Of a total 245.3 million dollars in net revenues for the year, only 136.3 million dollars came purely from ticket charges.

"Many of the smaller [online] firms are staying in business by receiving payment for order flow from market makers," according to Stephen Franco, a U.S. Bancorp Piper Jaffray electronic commerce analyst, in a June online discussion sponsored by Wall Street Journal Interactive.