WealthManagement Magazine

Are You Done For?

Ric Edelman's friend was 50 years old and eager to see if his retirement goals held water. But he didn't ask Edelman, a financial planner who runs The Edelman Financial Center in Fairfax, Va., for help."He used a retirement planning software program and told me how excited he was that it showed he could retire when he wanted," Edelman says. "He wanted to show me the results."Edelman analyzed the program's

Ric Edelman's friend was 50 years old and eager to see if his retirement goals held water. But he didn't ask Edelman, a financial planner who runs The Edelman Financial Center in Fairfax, Va., for help.

"He used a retirement planning software program and told me how excited he was that it showed he could retire when he wanted," Edelman says. "He wanted to show me the results."

Edelman analyzed the program's numbers: Assets and expected expenses in retirement looked good, and inflation was factored in. "'What about income taxes?' I asked him." Edelman's friend found he had accidentally skipped over the program's screen that would include income taxes in the calculation.

The result: "He'd overstated his net income by 33%," says Edelman. Done correctly, the results would have shown his friend wouldn't meet his goals. "These programs are not programmed to ask questions," Edelman says.

Brokers say experiences like these are convincing investors they need professional help more than ever. Nevertheless, the Internet's vast and cheap resources challenge brokers to be more savvy about financial information, they report. Reps increasingly see it as their job to navigate clients through a mess of opinions--not to position themselves as the sole source of opinions.

"We started out very scared, thinking that everyone would be doing business on the Internet," says Paul Williams, marketing director for Joseph Charles in West Palm Beach, Fla. "We mellowed to the idea that the majority of investors will use the Internet as a second form of research. But they expect brokers to use the technology. The danger is losing business to brokers who use the Internet better than us."

Many more clients lately are asking brokers at the firm for opinions on ideas they hear, Williams says. When that happens, he advises brokers to say the following: "Do you have access to the Internet? Here are the sites where you can get the information you need. I'll call you back in 15 minutes to follow up on what you find."

Fast Library Robert Krivit recalls the client who sat down with him and explained that his current portfolio would get him to his retirement goal with no adjustments. The client had gone on-line to a leading no-load fund company's Web site and used its retirement calculator.

"He told me it showed he wouldn't have trouble retiring in 20 years," says Krivit, a rep with Prudential Securities in Melville, N.Y. "But it turned out the program used last year's rate of return of 20% for his fund portfolio to project." Krivit's client knew nothing about historical returns; the Web site hadn't included the information.

The Internet is "just a fast library," says Krivit. Those who try to do their own estate planning on-line, for example, can easily plug in numbers, but "no Web site will ask: 'Are there any family members you don't want to leave money to? Are there any family members with special needs?'" he notes.

The explosion of on-line financial information was a key factor in recently earning his CFP designation, Krivit says. "I had to increase my knowledge, especially in tax and estate planning. I've had to become better, smarter, faster, cheaper and nicer."

A wirehouse broker on the East Coast says clients talk to her about what they hear in investment chat rooms. It's "a significant problem" because "people don't know who's in there and don't know how to interpret the information," the broker says. "They'll hear a company's earnings were reported up by X percent and see that as good news. But it may not be good news because nothing is said about the quality of those earnings."

When clients say they want to do their own research on her fund recommendation, the broker asks them a series of questions about the numbers they'll likely find using the standard on-line sources. "The numbers won't talk about investment style, turnover, implied gains and losses, style drift or attribution analysis," the broker says.

Ultimately, the Internet is "a good starting point" for investors, the broker has found. "Once they learn a little bit on-line, it lights a fire in them to get help," she says.

Analysis Paralysis Jim Haught sounds more weary than angry at the clients he knows are chasing hot ideas on-line. "Most of my clients using the Internet are trading options," says Haught, a Raymond James broker in Ft. Myers, Fla. "It just seems that if you see something on your screen in your room, it's easy to be convinced you're the only one who's seeing the information." These clients are trying to keep a portion of their money at a full-service broker just to get research, he says, then using their other money at a discounter.

He says it doesn't bother him for two reasons: First, the do-it-yourselfers in his book turn out to have few investable assets. Second, the do-it-yourselfers just want to have fun and will fold at the first sign of a bear market. "They'll need hand-holding, and we're in the business of hand-holding," says Haught. "I don't know that a hand comes out of a computer."

Investors are suffering from "analysis paralysis," says Stephen Cordasco of Wheat First Union in Philadelphia. "They're getting so many conflicting reports on investing from the Internet. In desperation, they're calling to ask me to make sense of what they find." Some clients do their stock trading on-line, he says, but it's only a "little bit of a competitive disadvantage. When clients do sizeable orders, they come to me."

It's not unusual anymore for Cordasco's clients to come into a first meeting with financial plans they've run from their own software. "I just met with a couple and told them I could take their financial information and do an asset allocation for them," Cordasco says. "They said they'd already done that through Quicken." Cordasco's response: That's great. It frees him up to get to the business of managing portfolios. "People still want a coach," he says. "I say to clients, 'You want one person to pull the trigger.'"

Cordasco also has made sure to research the software and Web sites he believes are helpful to investors. When investors come to him confused, he recommends what he's found.

Williams advises brokers to take it one step further. A broker now can use Microsoft Money and Quicken to give presentations on screen to clients for less than $50 instead of $2,500 a few years ago, he says.

"A broker could do a seminar on how to use Quicken and would get more people to come than a seminar on how to invest," says Williams. "All new technologies designed to put the broker out of business can be turned around."

Critical Filter How is a traditional stockbroker coping with on-line investing? For one wirehouse broker in the Southeast, it's become a partnership. He refers clients to Web sites and teaches an investment club how to use the good sites. He's on the Web all day, even checking Far East markets late at night to anticipate his trading strategies for the next morning.

He wants his stock clients to see him as a critical filter for what they're researching on their own. "When a client comes to me talking up something he's heard on CNBC, I say: 'You pay me to help you build and manage your wealth. CNBC is paid to boost Nielsen ratings. You pay E*TRADE $20 and get nothing but execution. You pay me $120 and you get red flags. I have a laptop and CNBC running all day. If something happens in the world and I don't know about it, it didn't happen.'" His rule, he tells clients, is if he can trash a client's stock idea in five minutes just by pulling up on-line research, they better agree it's a bad idea.

Like Cordasco, the broker reports he has no trouble competing on execution alone for big trades. "I'll have a corporate executive call with 200,000 shares to trade," he says. "He can't do it on E*TRADE; I offer better execution."

Investors still are on a learning curve with on-line investing, brokers say. It's much like the rise of no-load mutual funds in the '80s, says Edelman--everyone tried them, and many learned just enough to be convinced of the value of professional help.

"To succeed at do-it-yourself investing, you must have an equal amount of knowledge, time and interest," Edelman says. "That combination is tough if you're not a professional financial adviser."

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