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Online Investment Advisors

By pure coincidence, in the last week I’ve encountered two investment advisors who have online-only practices (John from Flat Fee Portfolios and George from Invest it Yourself).

Their businesses are quite different from each other, but in each case, the idea is that client-advisor contact occurs via email only–no face to face consultation, no option to talk on the phone when you have a question. In exchange, the costs are significantly lower than you’d typically pay for investment advice.

Until now, I hadn’t encountered any investment advisors that operated exclusively online. The idea intrigues me.

What do you think?

This type of practice brings up two questions about which I’d be interested to hear your thoughts:

  1. What do you think of the idea of personalized, though online-only investment advice?
  2. What are your thoughts on the value of investment-only advice? (Meaning that there’s no assistance with retirement planning, tax planning, etc.)

(For the moment, let’s set aside discussion of the best way to pay for an advisor–hourly vs. annual vs. percentage of assets, etc.)

Update: No, I’m not pondering starting such a business. My current business keeps me more than busy enough. 🙂 I’m just curious to hear what you think about the concept.

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  1. To someone who hasn’t read your books or blog (or has a general iterest) investing is a scary world, and I am not sure people will sign up for a service without meeting OR TALKING ON THE PHONE with the man behind the scenes.

    Notwithstanding, this sort of negativity didn’t stop Ebay, whose business model is based on people sending people stuff and not ripping them off just based on trust alone…so, don’t listen to me!

    Good luck guys!

  2. It seems they are more investment consultants then financial advisors. One does have a CFP certification but online it is all about the investments which is 1 part out of 4 or 5 of the CFP certification.

    It is a model that will strugle until generation Y can get some cash for investing. The online generation will be the main target group and will attract a few straglers from the later generations and I’m sure in 5-10 years online only practices will be common place.

  3. >What do you think of the idea of personalized, though online-only >investment advice?

    If it is the only personalized advice you can afford it may be worthwhile… however, I think there is a lot of communication that is lost going online-only. I don’t think most advice would have the same impact as if it was given face to face. Will you act on the advice?

    >What are your thoughts on the value of investment-only advice? >(Meaning that there’s no assistance with retirement planning, tax >planning, etc.)

    How can you give good investment advice without understanding the complete picture? A sound investment for retirement in 30 years can be a terrible choice for a goal in the near future. Any investment planning that doesn’t consider taxes may give most of your returns to the IRS! Still, if you are refining an existing plan a specialist could be useful

    -Rick Francis

  4. The model is a bit like an online health and fitness advisory website – at the end of the day if you really want to get fit (financially or otherwise) you need to get into the gym, get a coach/personal trainer and work closely with them.

    Having said that for the DIY investor who shuns the advice and planning side of things, we have a model min the UK which is hugely sucessful – have a look at Hargreaves Lansdown

  5. I think one of the previous commenters hit the nail on the head. It is where we are headed. These two may be a little out front of the trend, but like Twitter….the trend is coming. I think that if these two would add phone access, then they would hit it out of the park.

  6. I’m an investment consultant who believes that investors can manage their own money. I do meet with my clients and sit down at the terminal and go over it with them. The actual process of hitting the “buy” button is scary at first for many people.
    I, along with many of my ilk, feel that people pay way too much to have their money professionally managed. 1% to 2% of $1.0 million is $10,000 to $20,000/year. And the managers are not doing a good job.
    I think people, however, should be willing to pay up for a financial plan. Many times I have seen people turn away when they see a plan costs $3,000.

  7. I appreciate everyone’s comments about the online advisor space. I fully understand both the optimists and the skeptics. I think we would all agree that different investors have different needs. Some people prefer to manage their own investments, others don’t believe that full-service advisors justify their fees, and many don’t have the assets to attract a good advisor. I think that a low-cost online advisor can fill a void in the marketplace and give a do-it-yourselfer a valuable push in the right direction.

    Will a large number of people always prefer face-to-face service? Of course. Millions of people hire professionals to do their taxes each year, despite low-cost online solutions like TurboTax. People who argue vehemently that their way of doing taxes is “better” miss the point – there’s a clear need for both types of service in the marketplace. To be honest, in the investment advisory space, I consider full-service advisors who offer disciplined, low-cost investment advice to be teammates, not competitors.

    Just one clarification about phone access. I can’t speak for John, but I welcome phone calls. As an internet advisor, however, there is a regulatory concern with giving paid advice over the phone. From the regs: “[An Internet Investment Advisor] provides investment advice to all of its clients exclusively through an interactive website, except that the investment adviser may provide investment advice to fewer than 15 clients through other means during the preceding twelve months.”

    Thanks for bringing up the topic, Mike, and thanks to everyone for the feedback.


  8. “I welcome phone calls.”

    Whoops! My mistake. I must have seen it on John’s site and thought I’d seen it on both. Thanks for the clarification and for giving us some more info about the topic in general. 🙂

  9. I’ve met with advisors face to face before and ultimately decided they weren’t worth the fees, and weren’t offering me anything I couldn’t do for myself. I think that would apply to most reasonably educated investors who can control their emotions when things turn bad and stick to the plan.

  10. Jim Merchant says

    Another on line investment adviser is:
    He has two model portfolios to choose from. A conservative/income and a growth called (the top 20). It cost #20.00 a month to follow either portfolio. He offers complete profiles and market analysis for each stock in the portfolio. He says that you must treat the portfolio like a recipe. You put in the dollar amount that you want to commit, and the site will break down the percentage amount of each stock that you should own. You do your own trading, and he keeps you updated with any changes with emails. So far, I have been about a month and half into it, and it has done pretty good. He has been very forthcoming, and I have been able to talk to him and the person who takes care of the Web site. He has Blogs for individual investors, and for Institutional Investors. You are only committed from month to month. I chose the Top 20 Portfolio. I like the diversity of stocks, and he definitely has the ability and qualifications to run a site such as this. Check it out.

  11. I agree with George, online advice is just one of many choices available to investors seeking help. It probably is a bit ahead of its time… I think of it like online college degrees; they started out on the fringe, now we’re probably one generation away from them being mainstream.

    I am giving great consideration to adding phone access, just trying to test the demand (and work out some of the regulatory issues as George mentioned).

    Thanks for everyone’s comments!

  12. Mike,

    To question 1, I say it is entirely possible. In fact, many of my high-net-worth clients come to me through the internet and I offer them much more than investment advice. I offer wealth management services that include advanced planning and relationship management.

    Many of clients are successful doctors or business owners living in remote/rural regions. They nevertheless want the best expertise for investment, tax planning, estate planning, business succession planning and charitable planning they can’t find locally. I am no expert in most of these domains except investment, but I have a network of specialists whom I collaborate with to help clients. I manage their relationship. I was able to build deep trust with my remote clients without face-to-face meeting

    To question 2, I think the value of investment-only advice is limited, compared to comprehensive wealth advice.

  13. As a lawyer, this tickles me pink. Emails are so much fun as evidence. Much better than, “Well, my recollection of the meeting is that my advisor told me…”

  14. My clients seem to value face-to-face because I do financial planning — not just money management.

    These folks are mainly providing money management services and the model is good other than the being a lay-up for lawsuits as Jay mentioned.

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