Barron’s published a negative article about options broker OptionsXpress (OXPS) this past weekend, saying that “There is reason to be skeptical about claims made by Optionetics, a trading-seminar outfit that optionsXpress hopes will lure customers.”
OXPS uses Optionetics’ seminars to draw in new customers and provide them with commission-generating trade ideas. This is not uncommon trend in the online brokerage industry. Thinkorswim, now owned by TD Ameritrade (AMTD), used a similar strategy with Investools, also criticized for its expensive educational programs.
Barron’s delved into the background of Optionetics boss George Fontanills, noting the following:
A leading options broker closed Fontanills’ account after just five months and sued him in 2003 when he failed to honor margin calls on his trading losses. In a sworn court filing that year, Fontanills said his annual income was less than $15,000 and his net worth was $7,150. Fontanills says his trading losses resulted from margin calls by brokers who didn’t understand his strategies. “How many very sophisticated investors and traders got themselves in trouble and eventually, for whatever reason, lost the money?” he asks. “It happens all the time.”
Hmmm, that just didn’t sound good – I’m always been disturbed by ’sophisticated‘ folks that get into financial trouble and end up blaming the lawyers, brokers, bankers, etc.
Now does any of this actually matter? I doubt it. There’s no evidence that OptionsXpress is actually crossing the line from a legal standpoint. And besides, a very wise man once told me that “disclosure trumps intent.” I haven’t seen any of Optionetics’ educational materials, but I’m sure they’re loaded down with disclosures and fine print up the wazoo. And if TheStreet.com (TSCM) can get away with its aggressive marketing of Lenny Dykstra and Ron Insana, some bad press in Barron’s won’t hurt OXPS all that much.
And besides, OptionsXpress remains highly rated by outfits like Smart Money and even Barron’s itself for its nifty online-trading platform and customer service. It’s a great company to do business with, and that’s what will win out in the end.
disclosure: I am an OptionsXpress (OXPS) shareholder