Online Advice: Remote--and Reassuring
Scott Noyce is one of a new breed of online investors. The 39-year-old marketing executive with CIT Group has scant interest in managing his investments. So he delegates that task to a financial adviser, Thomas Lydon of Global Trends Investments. That Noyce works in Boston and Lydon in Newport Beach, Calif., is no obstacle. Noyce receives market updates from Lydon via e-mail, and they have private online chats at Lydon's Web site, globaltrend.com.
Using software called LivePresentation, Lydon displays relevant charts and graphs as he and Noyce meet online. During a recent session, Lydon demonstrated the virtues of portfolio diversification, posting a graph of value funds' recent triumph over growth. "It was just like an office visit," Noyce says. These days, investors such as Noyce are eclipsing the do-it-yourselfers online, and advisers are accommodating them with sites that provide different levels of services--from access to sophisticated financial-planning tools to cyber hand-holding.
According to a recent survey by Forrester Research, 35% of investors--whether online or off--are "delegators" who choose to put their money in the hands of a professional. Another 55% are "validators" who want to control their own finances, but occasionally need an adviser to vet their decisions. "If you've got $250,000 in your 401(k), you want some affirmation that what you're doing is right," says Michael Scarborough, an Annapolis (Md.)-based 401(k) adviser. "You're not going to just rely on an Internet tool."
"HOLISTIC ADVICE." To serve the needs of delegators, many sites provide access to full-service advisers, such as Lydon, who will manage money for a percentage of assets. LiveOffice, which built Lydon's site, has done the same for 6,500 other advisers. For validators, who often have less money, such hybrid sites as Financeware.com and Quicken.com offer advanced financial planning tools, but also give investors the option of paying for advice. Some sites let you hire an adviser for just a financial plan, pay per month for advice, or even pay per question.
Delegators looking for advisers should first check industry resources such as Napfa.org, which links you to sites of financial professionals who work in your area (table). For a more detailed investigation, visit InvestorTree. Its IntelligentMatch system will ask about planning services you need, your risk tolerance, and your preferred investment style. It even asks if you prefer a male or female planner and whether you want one fluent in a foreign language. Then it provides detailed résumés of planners who match your criteria. Some résumés have a "Verified" logo, meaning that InvestorTree has checked out the planner's credentials.
One problem with advisers is that few have the expertise or resources to manage your entire financial life. The planner handling your portfolio rarely does your taxes, and your accountant may know nothing about life insurance. One site, MyCFO, tries to remedy this problem. It aggregates information on all of your accounts, trusts, property, insurance policies, and taxes. A team of MyCFO accountants, lawyers, and financial planners then uses that information to give "holistic advice," hiring money managers, filing your taxes, even paying bills. And every transaction registers at the same site.
The cost of that service ranges from just 0.15% to 0.65% of assets, which is relatively inexpensive--but you have to meet the $10 million minimum. The firm has gathered $45 billion in assets in just two years of operation. Although the site aggregates all the information and links advisers, "80% of our work is face-to-face or over the phone," says MyCFO Chief Operating Officer Frank Tirelli. He hopes to offer MyCFO--with slightly less face-to-face service--to single-digit millionaires soon.
DRIVER'S SEAT. Validators will find advice more accessible. One worthwhile site is EXP. Instead of paying a percentage of assets, investors only pay for answers to the questions they ask. The site lists 348 financial planning experts, each of whom charges a per-minute fee to talk on the phone or per-question to send answers via e-mail. EXP gets a share of the fee. By clicking on an adviser's hyperlink, you get a detailed snapshot of the person's credentials. A black check next to an adviser's name means the site has checked out the credentials. Users can also rate the quality of advice from one to five stars.
Jennifer Garza used EXP to do her taxes. The 23-year-old San Jose (Calif.) resident became an independent contractor last year at a travel agency and was confused about her tax liability. She liked the fact that the credentials of her adviser, Carl Phillips, had been checked out. Also, Phillips answered her initial questions for free. She paid an extra $100 to have him file her return. "It was a lot cheaper and more trustworthy than going to the yellow pages, starting at `A', and calling down the list," she says.
Validator sites put investors in the driver's seat. At Financeware.com, you can design your own financial plan using a technique called Monte Carlo simulation that tests the probability of achieving your investment goals. Or you can submit your plan anonymously to a network of more than 2,000 advisers. Those interested will vie for your business by running their suggested improvements to your plan through Financeware.com's probability test. You choose from the advisers with the highest probabilities of success.
Unlike Financeware.com, Quicken's 401k Advisor, at quicken.com/retirement, focuses only on 401(k)s. You can design your own financial plan for free or opt to pay $19.95 a month for an adviser who will guide you over the phone. These advisers have access to a database of 1,100 401(k) plans. They've studied the mutual funds in each and know their strengths and weaknesses. If your plan is missing, say, a small-cap fund, the advisers would suggest how you can reallocate assets to achieve the optimal diversification.
The one risk of validator sites is that they can be too flexible for unschooled investors. If you delegate your control to an adviser, he or she implements the financial plan for you. But validator sites give you the tools to do it yourself. "Online financial tools are a lot more complicated than a hammer," says David Loeper, chief executive of Financeware.com. "If investors can't build their own deck or do their own plumbing, they may not be able to design their own financial plan." Good advice is worthless if not taken.
By Lewis Braham