[BW 5/28/01] When You Need Just a Little Hand-Holding
Sites for investors who want advice and autonomy
Dr. Richard Hamburg lost his zest for do-it-yourself online investing after his tech-laden $1 million-plus portfolio plunged 40% in the past year. But the 48-year-old Smithtown (N.Y.) plastic surgeon hasn't lost his desire to invest online. He's just doing it differently. Instead of trying to figure out what's hot in the market and then trading through his Schwab account, he has signed up with a site called WrapManager (http://www.wrapmanager.com/). Now, professional money managers do the stock-picking for him via a handful of managed accounts, though he still has a say in shaping his portfolio. "In this kind of market, you have to pay close attention to your trades, and I don't have time for that," he says.
Sites like WrapManager appeal to online investors seeking a middle ground: They want some professional advice but not the extensive hand-holding that comes with a financial planner or full-service broker. Such investors also want greater diversification at lower cost than they can get from buying individual stocks, plus more flexibility than is possible with one-size-fits-all mutual funds. "This isn't for everyone," says Ryan Tagal, a senior analyst at Boston's Cerulli Associates, which tracks online money management. "You've got to be comfortable handing over potentially large sums of money to people you haven't met."
FOLIOS. For those who are, these sites offer more convenience and lower fees than you find offline. WrapManager, for instance, charges 1.25% of assets annually, well below the 1.89% average for managed accounts sold through brokerages and financial advisers. Hamburg says a big reason he selected WrapManager is that he visited a local brokerage office that charged twice as much for access to an almost identical list of managers.
Investors who want to go this route have two options (table). In addition to the online managed accounts offered by WrapManager, E*Trade (http://www.etrade.com/), and CSFBdirect (http://www.csfbdirect.com/), you can buy "folios," or preselected baskets of stocks. Folio sites offer some advice but not active management--the investor makes the trading decisions. Also, you don't need big sums to invest in folios, some of which carry no minimums, while managed accounts require a minimum of $100,000 per account. Currently, only FOLIOfn (http://www.foliofn.com/) and Netfolio (http://www.netfolio.com/) offer folios, but Fidelity Investments (http://www300.fidelity.com/) and E*Trade plan to roll them out in June.
If you decide on an online managed account, you'll need to invest $500,000 to be sufficiently diversified, Tagal says. At WrapManager, you could pick from any of 120 accounts. Each focuses on a specific investing style, such as large-cap growth or small-cap value; an industry sector, such as energy or technology; or an asset class, such as bonds. Some 60 managers, who oversee investments for wealthy individuals, institutions, and mutual funds, run them.
WrapManager offers the most help in selecting accounts. After you answer a brief online questionnaire to determine your investing goals and time horizon, an adviser calls you within minutes to suggest several managed accounts that fit your needs. Hamburg's adviser recommended that he more broadly diversify his tech-heavy portfolio, which included big chunks of Cisco Systems (CSCO ), Juniper Networks (JNPR ), and Microsoft (MSFT ). So the doctor selected five accounts, including one that invests in convertible bonds. "I would never have thought of convertible bonds on my own," he says. While he ceded control of his portfolio, Hamburg can still customize his accounts. For instance, he asked that EMC (EMC ) be excluded from a tech-oriented account since he already owns shares.
One drawback at WrapManager is that you can't look at the full list of its managed accounts, as you can at the E*Trade (table ) and CSFBdirect sites. E*Trade offers 68 accounts, which you can rank by one-, three-, or five-year performance. Unfortunately, the performance data run only through Dec. 31, 2000. You must call E*Trade for more recent figures. CSFBdirect offers just six accounts but boasts the lowest annual fee for totals over $500,000--0.9% of assets.
Folios don't offer professional management, but they do provide a framework for picking stocks as well as instant diversification. FOLIOfn customer John Sudduth, a Colorado Springs (Colo.) veterinarian, owns a stock basket based on the site's popular biotechnology folio. "This way, I can bet on medical technology without having to figure out which couple of companies will be the biggest winners," he says. Because Sudduth is keen on companies developing novel medical therapies, he pared FOLIOfn's ready-made list of 30 stocks down to the 12 that best reflect his theme.
BUILD YOUR OWN. FOLIOfn, started a year ago by Steven Wallman, a former commissioner at the Securities & Exchange Commission, offers more than 120 preset folios, each comprised of 5 to 50 stocks. Mainly, they are based on market indexes, stock sectors, investing styles, or asset classes. Also, investors can build their own folios. The site has no minimum and charges $295 a year to set up three folios. The stocks can be traded twice a day, making folios popular with frequent traders. The site also has advisers on hand to answer questions. "We won't tell you whether you should pick IBM over Hewlett-Packard, but we'll explain how a riskier folio might behave compared to a less risky one," says Wallman.
Netfolio, launched in March by James O'Shaughnessy, a money manager and author of the 1996 best-seller What Works on Wall Street (McGraw-Hill; $29.95), puts more emphasis on giving advice. Customers who invest more than $100,000 and pay $1,000 or more a year for premium service get an adviser to guide them and handle trades. Even Netfolio's basic service, which costs $200 a year and requires only a $5,000 minimum, provides customized advice. For instance, Netfolio will tell you which stocks to sell or retain to minimize your tax bill.
Remember that online money management is still a fairly new and untested area. RunMoney (http://www.runmoney.com/), for example, started a year ago to offer managed accounts to individuals, but now deals only with financial advisers. E*Trade bought PrivateAccounts.com to form the basis of its program. Hamburg says he asked WrapManager what would happen if the site shut down. He was reassured that Wexford Clearing, a Prudential Securities subsidiary that handles WrapManager's money, would continue to hold his assets. Similarly, Bear Stearns holds Netfolio's assets in custody.
It's tough to be a solo stock-picker. The beauty of the Net is that you can get the help you need without losing the independence that made you a Web investor in the first place.
By Susan Scherreik
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