The great thing about being a do-it-yourself investor is never having to talk to a stockbroker. The hell of it is not having anyone to speak with about decisions that easily can affect tens or hundreds of thousands of dollars.
Sensing this hunger for just a bit of advice, T. Rowe Price recently introduced a service it's calling Investment Checkup. The idea is that for $250, the firm's financial-planning unit will help you understand your portfolio and see if it meets your goals and appetite for risk. "Investment Checkup can give you a valuable second opinion," ads promise. It follows TRP's successful launch last year of a service to help investors in or near retirement crack the problem of how much of their savings they can safely spend. For $500, that has proved to be a true bargain. Unfortunately, I can't say the same about this new service.
To test it out, I created two hypothetical portfolios, one that a young, single dot-commer named Charlie might own, and a second that might be held by an elderly couple, the Vincents. At the same time, to gather a second opinion about the service, I asked Mary Baldwin, a certified financial planner based in Melbourne, Fla., to reach into her files for a real-life case.
For each, we filled out TRP's 12-page questionnaire, which most people could complete within an hour, and sent them off to TRP. In the normal course of things, one of the firm's counselors would've phoned to acknowledge getting it and to check any incomplete or uncertain details. Since TRP knew we were running this test, it simply analyzed the portfolios and, within a couple weeks, sent back spiral-bound reports with conclusions and recommendations.
BIG FLAW. Here's where disappointment set in. In Dot-Com Charlie's 26-page report, for example, 11 pages restate data from the questionnaire. Another seven present general advice on stuff such as diversification. Just five pages truly bear on what Charlie owns and what, if anything, he should do with it. Instead of having 91% of his $322,000 portfolio in stocks, TRP suggested he dial back to 80% and broaden past domestic large-caps to small-cap (6%), mid-cap (10%), and foreign stocks (17%). The remaining 20%, it advised, should be split among investment-grade, high-yield, and foreign bonds. Is there anything wrong with this? No, except that it's the sort of generic advice available for free at many Web sites, including TRP's.
A major deficiency is the service's unwillingness to deal with common quandaries over how to handle taxable assets. For example, the elderly Vincents' $424,000 portfolio is nicely allocated among stocks (45%), bonds (40%), and cash (15%), which the firm generally endorsed. But it ignored the big risk: One-third of its equity allocation is in two big-cap stocks. Should they be sold and the money reinvested in mutual funds to spread the risk? Or held, to avoid capital-gains taxes that sap wealth-building potential? Much less attempt an answer, TRP doesn't even delineate the choices. After reviewing the report on her even more complex case of well-off 40-somethings, Baldwin confirmed my reactions. "Where's the meat?" she asked.
Judith Ward, a TRP certified financial planner, told me that with complex cases such as the one Baldwin posed, the firm is careful to call and ensure that clients know the service's limits. If it seems they'll be disappointed, it refunds their $250. Whether to offer more advice on taxable assets, she also noted, was a major point of internal debate among designers of the service. They may one day add it. For now, the firm says many early users are learning their portfolios are out of balance (charts) and are getting the most value from the two to three hours they spend on the phone with a counselor. These are CFPs-in-training, supervised by CFPs. Is their help worth $100 an hour? I don't think so.
Questions? Comments? Send an e-mail to email@example.com or fax (321) 728-1711