The Internet has changed forever the behavior of investors and investment managers. Low cost, combined with free access to data and research, has made on-line trading a cheap thrill for millions of people and forced full-service brokerage and mutual-fund firms to rethink what they are and how they can compete.

That was round one of the revolution. With the stalwarts of the industry launching the counterattack, round two is now well under way. At this stage of the game, two main challenges face the protagonists. The first is gaining access to a larger proportion of the assets of investors who have already gone on-line than the 5 percent they have so far invested via the World Wide Web (Exhibit 1). Since trading is becoming a commodity, it will be more important to gain access to those other assets than to collect fees for trades.

The second challenge is reassuring investors by offering help. People who are just beginning to trade on-line are unlike those who have been doing so for a while: less stock- and tech-savvy and less sure of themselves. In short, they need on-line advisory services (one might say "e-dvice"). The brokers’ reward for investing in them...