Winning Back the Web Wary

For tech-shocked investors, the Street now has online hand-holding

Welcome to Stage II of the Internet investing revolution. In the Web's infancy, "online investing" meant online trading--real-time quotes, $8.95 commissions, millisecond market access, and hip young guys teaching old fogies how to make their computers boogie to the beat of an ever rising Nasdaq. But the music stopped 14 months ago, and millions of investors discovered that a speedy trade can mean you just lose your money faster. Markets may be showing signs of life, but Web trading is still in a coma. Online trading volume is down 40%, and E*Trade (ET ) and Ameritrade (AMTD ) are laying off employees and slashing marketing budgets.

Now it's time to put the investing back in online investing. Wall Street's new Internet emphasis is advice--from financial planning to stock-picking to money management. Old-line brokerage houses and online upstarts alike are searching for the right amalgam of tech and touch, combining powerful Internet tools for calculation and communication with human insights into investors' needs and desires.

PHONE CALLS. For today's investors, stunned by the meltdown of their tech-heavy portfolios, it's a welcome trend. Brokers say they're seeing heavy demand to learn more about money-management basics: diversification, asset allocation, holding down taxes. People want to rediscover investments and market sectors that barely registered a blip on '90s trading screens, from bonds to energy stocks. Wealthier customers who used online trading accounts as their "play money" are bringing what's left back to their full-service brokers. And novices who thought they could go it alone are looking for the comfort of human contact.

Wall Street's advice offerings will determine who shares in the trillions likely to accumulate as the baby boomers age in the next decade. More than half have yet to hit their 45th birthdays--historically the start of each new generation's peak earning and investing years. As they turn to Wall Street, they bring their finely honed consumer expectations to their new role as savers. "Boomers won't choose between getting professional help and having control. They say: `I'll have both,"' says Daniel Leemon, chief strategy officer for Charles Schwab. "And they want both at very low cost, with flexible ways to pay."

What's emerging is a have-it-your-way menu of investment help. For the majority of investors who want an active relationship with an adviser, new online services are making it easier to find and collaborate with independent financial planners or money managers across the country. Internet technology is also slashing the cost of money management, bringing personalized separate accounts and tax-efficient baskets of stocks called folios into reach for the mutual-fund masses. And do-it-yourselfers--about a quarter of the 19 million affluent households with net worth exceeding $500,000--will find that the Web's tools for cyberadvice and trading are still improving.

"A SHOVE." But for most investors, the Web's biggest impact will be on the advice offerings of big brokers, whether online or old-line. What sort of help can you expect? Online brokers are adding human contact to their cyberadvice. E*Trade, for example, will soon roll out a combination of computer- and phone-delivered solutions to investors' questions, backed by the expertise of Big Five accounting firm Ernst & Young. Fidelity Investments' next-generation Portfolio Planner, due in June, will aggregate all of your Fidelity accounts with online statements from other firms, x-ray mutual funds to uncover their component stocks, and analyze your entire financial life by asset type, industry breakdown, and risk profile. While you're online, a Fidelity phone rep can watch the screen you're working on and guide you.

Online advice still puts a big burden on users: You have to figure out the right questions to ask, and then you must be moved to act on the results that you get. "When it comes to making investments, people usually need a shove," says John Rekenthaler, who heads the online advice unit of Morningstar. "Online advice without the human push usually won't go anywhere."

That's where the Wall Street giants--written off as dinosaurs by e-commerce gurus--have the edge. True, they've been clumsy in using technology; most are just now letting brokers send e-mails directly to clients. But they're rapidly adding cybertools to let investors track portfolios and figure out their own investment mixes. Brokers can monitor the results and follow up with specific recommendations. "It's counterintuitive, but we've found that when an investor uses a self-service analytic tool, her appetite to talk to her adviser increases," says Martin Hoekstra, group head of markets for UBS (UBS ), the Swiss parent of UBS PaineWebber.

CONSISTENT YARDSTICK. At Salomon Smith Barney's Web site (table), you can search for a broker by specialty, such as retirement or college saving; investing style, or shared interests (a Penn State alum who coaches Little League). Once you have signed up, you can get an aggregated statement of your accounts at SSB and any other institution that posts statements online. With your broker--in person or while sharing screen views on separate PCs--you can use calculators to analyze your goals and see how your asset mix fits with SSB's recommendations. Automated account-tracking and cybertools for basic goal-setting let clients and brokers "get past the introductory stuff and start their conversations on a higher level," says Stephen Clifford, who heads SSB's interactive marketing. And when it comes time to pick stocks, the broker can insert links to SSB research, news articles, and Webcasts into your statement page, where you'll see them the next time you log on.

For customers, the online push is likely to improve the big brokers' advice. Online tools highlight the products a client needs--not the ones that a particular broker knows best and peddles to every prospect he meets. Cybertools also give you a consistent yardstick for measuring your broker's recommendations: If the asset model says you should put 10% of your money in foreign stocks, you're likely to question your broker when he suggests you put 20% in an emerging-market fund. And investors can now check track records of many firms' analysts, using such Web sites as BulldogResearch.com, before deciding whether to act on that hot "buy" recommendation.

How should you pay for advice? Most online brokers don't charge directly, hoping the offerings will attract bigger accounts. (The average account in 2000 at E*Trade was just $12,000, which is typical of online discounters, says analyst Richard Repetto at Putnam Lovell Securities.) At full-service firms, investors are flocking to fee-based accounts, paying 1% or so of their account balance each year instead of commissions for every trade. The fees remove a broker's incentive to push you into unnecessary trading--but for inactive investors, they can be expensive. Charles Schwab (SCH ) is taking a fee-for-service approach: Its onetime $400 Portfolio Consultation offers clients a thorough financial checkup using a combination of Web tools and local brokers. After discussing the results with a broker, a client can monitor the progress toward meeting the recommendations via the Web.

Online trading might have been the first killer app for Internet investing services--especially in a historic bull market. But as the boom fades to a distant memory, suddenly being the one in sole command of your financial life doesn't seem so appealing. The Web's real promise will be realized when it helps you pair up with the right pros for the support you need. The advice you want, the way you want it--that's what online investing sites are starting to deliver.

By Mike McNamee

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