The recent announcement by TeamVest that it has joined with Intuit to offer advice through Intuit's Quicken portal and the Excite@Home portal (Intuit provides the financial area to Excite.com) marks a turning point in the evolution of advice. TeamVest's strategy is to use the portals to go straight to the user of the product -- the individual.

Financial Engines seems to be following a similar path.

The Players

401kForum Based in San Francisco and now reorganized as a unit of Emergent Advisors. The firm is located in the SOMA district of San Francisco -- an area associated with hot dot com firms. Its founder, Drake Mosier, came from Smith Barney where he was familiar with the broker's "TRAK" program. Ted Benna, widely noted as the "father" of 401(k) sits on the company's board.

Financial Engines A prototype Silicon Valley tech startup of the Nineties. Located in Palo Alto just down the road from Stanford University and the offices of Profs William Sharpe and Joseph Grundfest. The pair reportely hatched the concept for the idea in a Stanford cafeteria. CEO Jeff Maggioncalda is a twenty-something with a Stanford MBA. The company also boasts a high profile board featuring Olena Berg Lacy, who formerly headed the PWBA.

Rational Investors Founded by Francois Gadenne and Ben Williams. CEO Gadenne hails from BankBoston and Arthur D. Little where he was team leader of the group that developed a weather forecasting expert system for NASA following the loss of the Challenger space shuttle. Williams, programmer, developed the DOS memory extender in his previous job. The pair sold the Rational to Standard & Poor's, a unit of McGraw-Hill, this year.

Ibbotson Associates Founded by Yale professor Roger Ibbotson, the Chicago-based firm has a long track record as a consultant to the pension and investment community. First moved into the advice market as the developer of the advice model for TCW. Has since provided its capabilities to education firms including Weisenberger and Newkirk.

The Rest of the Field TeamVest A Charlotte, NC-based administrator and recordkeeper serving the small plan market and founded by executives from TrustMark. Recently formed an alliance with Intuit to provide advice through Web portals. Investment Technologies A New York-based firm founded by Brian Rom in 1986. IT announced its entry into the 401(k) advice area in 1998. DirectAdvice A Hartford, CT-based startup that initially targeted the retail investor as Mentum. It has raised money from Japanese investor SoftBank Group and is said to be eyeing the 401(k) market. It is also rumored to be working with E*Trade, which has also raised money from SoftBank. AdvisorNet, LLC Owned by Chicago-based Marquette Associates this service was announced at the end of 1998.

It recently revamped its Website from a brochure targeted at corporate clients, partners, and investors into a retail site that delivers its Advisor product directly to the individual for $14.95 a quarter.

Financial Engine's Maggioncalda believes that when individuals need advice with 401(k) plans, the hurdle they are trying to leap across is not 401(k)'s but investing in general. "And needing help and advice with investing is the same whether we are talking about 401(k) plans, IRA's, or brokerage accounts," he opined. "Clearly, the investors who participated in the third round of financing at Financial Engines perceive the need and the opportunity that goes beyond 401(k)," Maggioncalda continued. "It's just starting."

"Advice will not stay focused on 401(k)'s," agrees Forrester's Gazala. "Look at all the providers starting in the defined contribution space. They are answering a finite problem. Retirement is a finite goal. These providers will be looking to offer services in other financial areas. They will be exploring how their services can made available to a larger segment of the population, a segment that may never have had these kinds of products before."

"This will put a real pressure on human consultants, advisers, and brokers. They will now be challenged by the advice that is being provided online. They will have better educated customers. Now, individuals will not depend exclusively depend on Internet advice, but they will use it as a sounding board to get that second opinion," Gazala contends.

Ray Martin, principal at SSgA, also sees a bright future for advice, but he does have some concerns about the means of how that advice is communicated. "Participants need help and advice. This is no longer the old days when your employer picked your investment options for retirement. You have to make your own choices, and people want to know how to do that, and it is important that they know how to do that."

"Where I have questions is with communications. If you just do advice over the Internet, you are locking a large number of people. A 401(k) provider should be trying to reach as many people as possible. That is why there is a need for both telephone call centers and Internet applications. Some people need a dialogue with a real person, an adviser. Why do people put their book orders into Amazon.com and then call one of that company's sales represenatives to make sure the order has been received? Because there is a need for dialogue and human interaction that no advances in technology will cause to go away," Martin argued.

"I try to put myself in other people's shoes. The truck driver does not necessarily have access to a computer. There is one computer for every three households in America. That means two are without. You cannot cut those people out of the loop," he continued.

Forum's Deschenes shares some of Martin's concerns about communications. "As much as we believe in technology, we need to look beyond the Internet as the sole means of communicating with participants. We have been developing our telephone and paper means of communication. As this market develops, there will be a wider cafeteria of products with different price points. It will become a more segmented market and a more complex one," he told the 401kWire.com.

"You have to look at trend lines in terms of participation utilization. Participants use advice and have been incredibly satisfied with it, much more than with other elected benefits. And providers are reacting to the demands of participants," he continued.

401k Forum believes that advice will be ubiquituous in five years. "Like daily valuation, it has a period where it needs to be initially accepted. Then it will become the must-have product."

Deschenes also sees that advice has applications beyond 401(k) plans. "Initially, 401k Forum will be expanding our advice into IRA roll-over markets, 457 plans, and 401(a) plans. And then we can expand into other areas as well," he stated.

He also sees applications for advice products beyond American shores. "One of the things we are exploring and we are in talks about is the marketing of our services in countries like Japan and the United Kingdom where they are developing a 401(k)-like system," he concluded.

But there are those who sound a note of caution about advice as well.

"It is now a given that participants need advice," says Mark Davis, president and founder of Mark Davis Consulting (a California consulting firm that specializes in education for sponsors). "There is still a split as to whether or not sponsors need to be giving it. Sponsors have not been educated enough on advice. And there is still a mismatch in terms of content and delivery. Those who need advice the most are the ones who have the least chance of assessing it."

"Another current problem is that most advice systems are not actionable," Davis continued. "Once the participants get the advice they need, they cannot act on it. That is a spot where the system falls down. The participant has to go to another website or pick up the telephone or go to the human resources officer. This is a definite area for improvement."

"And the industry has allowed itself to think that online advice is the answer to all problems. That is not the case. You still need education. I think when you have told someone what to do, that advice should be wrapped in some kind of education so that participants have a context of understanding," he argued.

See also, the first three parts of the series: Advice: "It's Here to Stay", Advice: The Rollout, and Advice: The Present. 

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