A number of online wrap account providers have sprung up offering managed accounts to do-it-yourselfers. But so far the programs have attracted few assets.
Fees ranges from 110 to 125 basis points (depending on services). Full-service Wall Street firms charge an average of 189 basis points, according to Cerulli Associates, a Boston financial services research firm.
So far, online providers are asking for 100,000 dollars minimum accounts. That's higher than some wirehouses, including Salomon Smith Barney, which dropped its minimum to 50,000 dollars in May.
Online wrap vendors are using the same wrap account service bureaus as full-service firms (see "The Piggybacking Strategy," Page 40). And in many cases, they offer the same stable of managers.
About two dozen online firms offer managed account services, according to Robert Sterling, a senior analyst at Jupiter Communications in New York. They include: * RunMoney.com * WrapManager.com * PrivateAccounts.com * InvestorForce.com * myMoneyPro.com * ManagerLink.com * Advisorport.com and * eFrontiers.com.
Some vendors are offering automated advice for customers. "We are seeing more and more of these," Sterling says. "And depending on what they have to offer, they could be competition" for full-service reps.
Robert Jorgensen, CEO of RunMoney.com in San Diego, describes the site's advice component as a "virtual consultant" that clients can use in matching goals and risk tolerance to a portfolio manager. The firm has offered online investment tools and educational material (as well as live telephone support) since May.
Sterling dubs the new online firms "informediaries" because they're looking to deliver tailored information without an adviser.
But executives at the online wrap vendors claim their services complement brokers and advisers. Gabriel Burczyk, who runs San Francisco-based WrapManager.com, insists that his firm has attracted only clients new to investment management.
"We haven't taken business away from another firm," Burczyk says.
The online wrap providers won't disclose assets under management, but Sterling says online wrap assets don't amount to much now. However, he says these new entrants could become major players in the wrap business.
Online wrap providers are following the same strategy online brokers used--create a new marketing entree then hook the back office to an established player.
Instead of working with major clearing firms, online wrap programs are relying on managed-account service bureaus.
For example, RunMoney.com is loosely affiliated with Lockwood Financial in Malvern, Pa., a traditional wrap sponsor. RunMoney.com uses Lockwood's stable of portfolio managers.
Likewise, WrapManager.com of San Francisco uses the services of Bridgewater, N.J.-based The Investment Center, another traditional wrap vendor.
CheckFree Investment Services, which serves traditional wrap marketers, is also beginning to serve more online firms. "We're getting a lot of calls from [online wrap firms]," says James Waller, senior vice president at CheckFree in Jersey City, N.J. So many, in fact, that CheckFree now has a salesperson dedicated to the new firms, Waller says.