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Thursday, February 22, 2001

What Should I Invest In?

Reported by Tamiko Toland

Investors want advice. A four-member panel at NICSA's annual conference in Miami discussed changes in the business of giving advice, many of which have been effected by technology, especially the Internet. David Peck, senior vice president of asset management products and services at Charles Schwab moderated.

"It is the biggest innovation in the financial services industry since the first index fund or maybe the first open-end mutual fund," said Ed Rodden, senior vice president of help and advice marketing at Charles Schwab.

Talk is cheap, and getting cheaper still. Panelists discussed the commoditization of advice because of the Internet as well as an increased awareness among the consumers of the need for some guidance.

"While there was an initial flurry of self-directed activity, people found that do-it-yourself financial planning is not as much fun when you're losing money," said James E. Folwell, a consultant with Cerulli Associates.

How can the fund industry use this trend to boost sales and make the money stick?

Advice-giving tools are useful and provide a 24/7 environment where ignorance need not be a source of embarrassment. However, especially when you consider that the Internet may well be the cause of the current desire for advice, the Internet is not going to simply solve the problem.

"We know clients will buy more if they have a face-to-face relationship," said Sarah McKenzie, vice president and general manager of wrap products and personal trust services at American Express Financial Advisors.

McKenzie observed that getting paid for advice can present a challenge, but tangible products, like complex financial plans produced by her firm, help demonstrate value to clients. Furthermore, she stressed that technology can be implemented to help leverage sales across multiple channels.

Panelists also discussed the various flavors of advice: it can range from information handed to self-directed investors to a very hands-on, fee-based approach. Many firms have not effectively identified a client's level or moved clients through the varied levels of advice as their needs change.

"Understand which business you want to be in and which customers you want to serve," advised James Duncan, vice president of marketing at DiaLogos.

"We've decided that we're playing into that entire spectrum," said Schwab's Rodden.

"Moving a client across different levels of advice is difficult," said Folwell, explaining that proprietary attitudes within organizations often prevent the smooth transition of clients from one advice platform to another.

While Schwab has a known fondness for the use of technology, the Internet has in some ways presented challenges for the industry. Pointing out that current efforts to dispense advice have to compete with hot tips on the Web, Rodden said, "Chat rooms are the graffiti on Internet walls."

Rodden emphasized that firms have to be able to reconsider their business models when reacting to changes in the industry. Applying this to Schwab's business, he related the following anecdote from his firm: "After pricing on trades at our firm went to $29.95, Dave Pottruck said, 'If it goes any lower, we'd might as well refer to it as a tip.'" 

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