A revolution still looking to click with advisers

May 7, 2001 @ 12:01 am

By Brooke Southall

Until five years ago, getting your hands on current financial information was an adventure.

Your best bet would have been someone with access to a Quotron machine, who wasn't out to lunch, on the other line or playing golf.

Now securities research, market quotations, trading capabilities and access to account information are at everyone's fingertips, thanks to the Internet.

The online revolution also has seen the birth of 20 million point-and-click individual investors in the United States alone.

The investment world stands transformed, and financial services companies have scrambled to get a piece of the action.

But where do we go from here?

Has the financial services industry jumped ahead of itself?

"Many service providers have taken a build-it-and-they-will-come approach, and that has not worked out," says Christopher M. "Kip" Gregory, principal with the Gregory Group, a Washington firm that helps financial advisers apply technology.


Indeed, as online firms - from eToys to Yahoo! - have learned, profits are hard to come by.

Online brokers, including Ameritrade Holding Corp. in Omaha, Neb., and E*Trade Group Inc. in Menlo Park, Calif., are now hitting the wall, despite boasting assets that have ballooned more than 400% in the past three years.

All are struggling to attract new customers.

"Those investors who can use [online brokerage services] are already using it effectively," says James A. Scurlock, senior manager for the financial services industry at Cap Gemini Ernst & Young in Boston. "It seems to have reached a plateau."

But many firms are pushing harder than ever to increase their online presence in a bid to cut costs, build in efficiencies and expand market share wherever possible.

Brokerages and banks are looking to serve 55% of their customers online by next year, according to Mr. Scurlock's research.

Yet the same research shows customers have other ideas - 63% plan to manage their finances by mail, automated teller machine or at a branch.

And it's an issue not only for the big boys. An online report by Deutsche Banc Alex. Brown warns smaller financial services firms not to be complacent - it's not enough simply to be online.

"Customers continue to seek out the latest and greatest technology and are not required to pay for it," the report says.

"Costs to compete continue to increase, so the business has transformed into a competitive environment in which only the larger players will be able to operate profitably going forward," it adds.

While companies wrestle with how much to spend on technology and try to guess where consumer demand is heading, some observers see the online revolution continuing unabated.

"We're going through the second phase of the online revolution," says Jim Tousignant, executive vice president of business development and e-commerce for Morgan Stanley Dean Witter & Co.'s individual investors group in New York.

The power of raw online trading in the beginning was fun and exciting, he says, but now the market is maturing into its second phase of development.

New era

A new generation of Internet software firms is making a push for smarter and more interactive technology. The next technical leap in online services will provide financial advice or at least supply the framework to make intelligent decisions.

For investors, it means websites that spit out financial plans and account aggregation software that consolidates credit card bills, banks accounts, brokerage and mutual fund accounts.

For many financial advisers, the new trend in services and offerings appears to threaten their role. But ironically, the trend could actually reinforce it.

"A few years ago, there was some fear and suspense over whether [online alternatives] would replace advisers," Mr. Gregory says. "But it's reinforced the role of the adviser.

"People are being overwhelmed with information with 7,000 pages of new content being added to the Internet daily. I see the adviser playing the role of human portal," he says.

Customers already love asset-based fees and unbiased advice, Mr. Gregory says, and the Internet has given advisers access to research and market-monitoring capabilities similar to brokers'.

Then factor in the other online tools available to advisers.

Advisorport, one of the new breed of advisor services on the web, offers client-profiling tools, asset-allocation analysis, performance monitoring and rebalancing models. The site also allows advisers to generate customized, private-labeled proposals and reports.

Advisorport has signed up more than 50 advisers since its online investment-consulting platform was introduced a year ago.

The Philadelphia company says it's adding more than one new customer per week to its current client base of independent advisory firms, brokers, bank and trust companies, and money management firms. It currently services more than $500 million in advisory assets.

Advisers, however, have been slow in adopting new software or services such as Advisorport or its competitor Envestnet.

Mr. Gregory reasons that as small-business owners, advisers are turned off by the perceived greater cost, despite the possible long-term savings.

The impact of the online revolution doesn't end there. As well as shaping some of the services advisers offer, online technology has also helped advisers run their business.

For example, advisers such as Norman M. Boone, principal with Boone Financial Advisors in San Francisco, are independently making the move to a new generation of online back-office systems.

Mr. Boone is replacing his database client asset-management system and getting a much more expensive one from Techfi Corp. in Denver "because it's the most web-based."

The advantage is that he can outsource that nettlesome technical part of his business.

That saves money because he can eliminate at least one salary, but - more importantly - it means he won't be "held hostage" to an employee who is the only one that understands the system, he adds.

It also makes his back office work more seamlessly with his website.


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