WATERHOUSE’S FIRST PRIORITY: BEING NO. 1

Waterhouse Securities Inc. is through pussyfooting around. In a slide-filled presentation at its adviser conference in San Diego late last month, Waterhouse executives Peter Mangan and Frank Petrelli vowed that soon their firm will overtake its biggest rival.

Already Waterhouse has 1.6 million brokerage accounts, in comparison to Charles Schwab Corp.’s 5.6 million and Fidelity Investments’ 2.2 million. And Waterhouse has leapfrogged E*Trade Securities Inc., Datek Online Brokerage Services Corp., Fidelity Investments, and Ameritrade Inc. to become the second largest firm in terms of online trading with 12.4% of market share to Schwab’s 27.4%, according to U.S. Bancorp Piper Jaffray Inc.

But is Waterhouse closing the gap or playing catch-up? The New York-based brokerage has about 150 branches nationwide and plans to add 50 by the end of next year, says Mr. Petrelli, president of Waterhouse Investor Services. Schwab has approximately 290 and is adding another 50 this year, according to co-CEO David Pottruck.

Waterhouse also officially launched its separate-account program during its show — the same type of program Schwab launched back in October at its own adviser conference. And it announced that, like Schwab, it won’t let advisers who haven’t registered with the Securities and Exchange Commission join its newly launched referral program. The free program, begun in February, is expected to draw 100 to 150 advisers in its first year, Mr. Mangan says. Advisers must have at least five years’ experience.

One adviser attending the conference, who is ineligible for SEC registration because he manages less than $25 million, complains: “Waterhouse is taking from Schwab’s playbook and cutting out the little guys.”

a matter of logistics

But Mr. Mangan, executive vice president of Waterhouse Institutional, the firm’s adviser unit, says it comes down to logistics.

“If we have to start monitoring the compliance of each adviser over various states, we have a problem on our hands,” he explains. “And we want advisers who can withstand the test of some scrutiny. SEC registration isn’t all that difficult.”

He doesn’t much care for the suggestion that Waterhouse is copying Schwab’s every move, either. “The reason our programs look similar is because our customer needs are the same,” he says flatly.

Indeed, rather than creating new ways of doing things, Waterhouse is trying to distinguish itself through customer service, says Mr. Mangan. “The value is superior when you consider we are doing what Schwab is doing and charging less.”

For advisers like David Citron, Waterhouse’s rallying cry to be the best rather than the first has begun to resonate. Mr. Citron, who manages $250 million from Baltimore and once served on Charles Schwab’s advisory board, says he was at the show because he’d become disenchanted with Schwab and he wanted some options.

“Schwab’s become too fat and happy,” he gripes. “It’s turned into an asset gatherer.”

Responds Lisa DeMatteo, a Schwab spokeswoman: “We’re not always perfect; sometimes an adviser needs to look for another service provider. But we think we do a pretty good job. We have a 10-year history of listening and successfully responding to adviser needs.”

How many Mr. Citrons Waterhouse will attract may ultimately mean the difference between overtaking the competition and remaining in its shadow.

One thing is certain, though. Waterhouse has some strong backing. Its parent, Toronto-Dominion Bank, is the largest discount broker in Canada and the third-largest globally. It boasts brokerage affiliates in Hong Kong, Australia, Britain, and, of course, the United States, following its acquisitions of brokerages Kennedy Cabot & Co. and Jack White & Co. in the last two years.