Ernst & Young, E-Trade Plan Advice Venture

E-Trade Group Inc., the second-biggest online broker, and Ernst & Young, the third-largest accounting and consulting firm in the U.S., said Tuesday that they are launching a $50-million venture to provide financial advice to investors.

The two companies said they will let E-Trade’s 2.6 million clients have online and in-person access to Ernst & Young’s 1,000 financial planners for advice on home buying, taxes, estate and retirement planning.

Services will be priced according to how a client accesses the advice, with online-only costing less than in-person, E-Trade said.

E-Trade, based in Menlo Park, Calif., and New York-based Ernst & Young will each contribute $25 million in assets and capital to the as-yet-unnamed joint venture.

E-Trade would own 50.1% of the new firm, which will develop the technology allowing access to Ernst & Young advisors.

“This is really transformational for us; it broadens us from a brokerage that tries to save clients money to helping our customers make money,” said Jerry Gramaglia, E-Trade’s president. “This completes a big piece of the puzzle.”

But E-Trade may have had little choice, analysts note. Discount brokers are seeking to add advice to compete with such full-service firms as Merrill Lynch & Co. and Morgan Stanley, Dean Witter & Co., which have bolstered their Web-based services in the last year.

E-Trade has been seeking to add advice since the beginning of the year, and is ending a five-month relationship with DirectAdvice.com, a Hartford, Conn.-based start-up that provides online financial planning tools, said Amy Errett, E-Trade’s chief asset-gathering officer.DirectAdvice didn’t have enough planners, she said.

But Neil Benedict, DirectAdvice senior vice president of sales, said: “Our sense is that things were going well. We’ll just have to explore this and see what it all means.”

E-Trade shares rose $1.06 to close at $15.94 on Nasdaq. The stock has tumbled from a 52-week high of $44, amid worries over the general slowdown in online stock trading as the Nasdaq market has plunged in recent months.