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Building the Right Tools

by Lauren

Vanguard stated in the September 5th issue of Investment News that usage of their online financial planning tool jumped from 15,000 in all of 2005 to 4,000 per month in 2006. The service is free to clients with either more than $250,000 invested with Vanguard or that bring $100,000 in new assets. Otherwise, there is a $1,000 fee for the service.

This type of usage volume is scaring some financial advisors, according to the article. The fact that so many of their clients (or potential clients) are relying on an online tool is viewed by many as a threat to their business. Others argue that the proposals are too cookie cutter, in that they cannot possibly take into account the intricacies of each client, like a financial advisor could.

While many financial advisors certainly do take the time to customize portfolios, the reality is that the mass affluent and second-tier clients are often getting cookie-cutter portfolios too. For example, it is no industry secret that even SMAs are often just a marketing wrapper to make clients think they are getting more customization then they actually are.

Instead of writing off the tool, the firms and advisors instead should do the following:

Ensure authenticity: If you say you offer a truly customized plan for clients, you better make sure you really do, since investors are increasingly savvy about what they can get elsewhere (particularly if they find something that is cheaper and better).

Build effective tools that foster communication between clients and advisors: Vanguard admittedly did not develop the tool to compete directly with advisors, but rather to fill a need for their retail customers. That said, better integration between advisor and retail site tools may help kill two birds with one stone (for lack of a less lame analogy): clients get the on-demand customization they desire, and advisors can be better informed about their clients investment needs.

Build unique, differentiated tools: For all the debate about the value of online tools, Vanguards success should stand as another example that truly valuable, differentiated tools are worth the investment. Copying your competitor is what makes your tool flop.

See the internet as your friend, not your enemy: The success of Vanguards tool should further drive home the point that there is a tremendous demand for financial resources online. Advisors should use the Vanguard tool as fodder for leveraging the tools provided by asset management Web sites and their own firms. Firms need to stop seeing the Web as an ancillary service provider and start using it as the Sales and Marketing tool it can be.