A Revolution That Hasn't Happened

Why aren't advisors taking advantage of applicatio

Here we are in the midst of one of the most exciting technological breakthroughs of the Internet era and independent financial advisors are standing on the sidelines. Advisors have been extremely slow to adopt technology from application service providers (ASPs).

For those of you unfamiliar with the lingo, an ASP lets you run an application from a Web server. Dozens of ASPs in recent months have been driving headlong into the independent advisor market, but advisors generally have been behaving like deer looking into headlights.

Who can blame them? The offer to retool the industry comes at a time when the bull market boom has become a bust. Talk about bad timing. Who has time to look at new technology when the stock market is so volatile?

The bear market was not part of the business plan of a lot of these dot-coms. "You have a lot of great ASPs, but what are their finances?" says a spokesman for Schwab Institutional, which kicks the tires on many ASPs as potential partners or acquisition candidates. "Because of the dot-com shakeup many are having trouble getting the right funding and staying viable. But we do believe the ASP model is here to stay, and we see it as the next generation."

So as we enter the shakeout period in which some ASPs will undoubtedly bite the dust, let me give you some perspective on the online application phenomenon.

The first ASP to hit the industry was an Advent product. "A new product from Advent Software could alter the way many financial advisors do business," I wrote as my lead for a March 1999 story about an Advent product called Browser Reporting for Enterprise Users, or BREU.

BREU was revolutionary because it powered the first Web-based service bureau for advisors. With BREU, a B/D or data-collection company could download your clients' data for you from your B/Ds and custodians and then import the data into Advent's portfolio management software. Service bureaus had been performing that task for years, of course. The revolutionary part was that BREU allowed you to access the reports over the Web.

In June 2000, a second ASP began operations. AdvisorMart from TechFi Corp., a startup company in Denver, was an application that also did portfolio reporting. AdvisorMart would do all your downloads, reconcile your data, and then upload it to a secure server. You'd be able to see a wide array of performance reports posted to the Web for you by AdvisorMart, and your clients could also see some reports over the Web. Instead of increasing your overhead, you could outsource your portfolio reporting tasks.

Around the same time, Financeware arrived on the scene. The application it offered was Monte Carlo analysis and financial planning and modeling software. Since your client's financial plan resided on Financeware's secure server, you and your client could log onto Financeware's server and tweak the client's projections, even if you and your client were in separate physical locations.

This was the beginning of a technology revolution that has since grown to include a number of ASPs. But what if you gave a technology revolution and nobody came? That's what's been happening.

Advisors have not yet joined the ASP revolution. ASPs have generated an enormous amount of attention and excitement, but so far ASPs appear to be attracting few real users.

Executives at Envest- net.com, the Chicago-based online separate account management system, told me recently that they had only about 50 advisors on their system. Executives at ADVISORport tell me they have about the same number of advisors and about $600 million of assets. Both companies are ASPs that offer separate account management platforms via the Web, have been marketing to advisors for about a year, and have been backed by initial venture capital investments of about $15 million.

TechFi, which received an investment of several million dollars from Morningstar, has had a bit more success: it has 100 advisors using AdvisorMart. Financeware, which raised in excess of $10 million in VC, says it's seen a incredible increase in the last two months in the number of advisors signing up. (You can try out Financeware's product, by the way, at www.investmentadvisor.com.) Company CEO David Loeper says the slumping stock market has made advisors see the value in Monte Carlo analysis. But until this recent good news there was scant evidence that its application was being widely adopted.

These ASPs are led by creative entrepreneurs who understand independent advisors. So it will be a shame if they do not succeed. But they have great obstacles to overcome.

"It's true that using an ASP is a revolutionary change, but that doesn't mean it will be adopted at a revolutionary pace," says David Silvera of Rosemont Partners, a merchant banking firm that on April 11 agreed to provide an undisclosed amount of new financing to ADVISORport via a note convertible to equity.

Independent advisors are understandably slow to embrace new technology. You don't have a staff of technology professionals to evaluate new products. Plus, if you're affiliated with a B/D, the ASP needs to be on the approved vendor list of the B/D, and many B/Ds have just begun to evaluate the ASPs that have appeared over the last year.

Furthermore, advisors are loathe to move their back office operations from their own offices. They are concerned about losing control of their data, fret over privacy issues, and worry about what would happen if their ASP should go out of business.

On top of these obstacles, advisors have been a little distracted lately. What good is having new technology if you're losing clients because of the bear market? "Inertia takes over and the attitude of many advisors is that 'If it ain't broken, why fix it?'" says Greg Horn, CEO of ADVISORport.

"Very few of the advisors are excited about the ASP technology," says Michael Shelly, VP of technology services at Raymond James Financial Services, the B/D at which about 4,000 independent reps hang their securities licenses. "For the most part, independent advisors want all the data on their own drives. We just haven't seen those ASPs getting used."

Chris Boruff, president of the advisor business unit at Morningstar Inc., believes that some ASPs have simply been too far ahead of the curve. "Advisors are using the Web heavily, but they're using it as a big library of information," says Boruff, who's responsible for Morningstar- Advisor.com. "But the tools and services that have been offered on the Web by companies like Financeware are trying to get advisors to do things very differently than their current practices. It's a paradigm shift."

Morningstar, Boruff says, is about to roll out an online workstation for advisors that stops short of re-engineering the way advisors do business. It's creating an online version of Morningstar's popular PrincipiaPro software for evaluating mutual funds and stocks. "We're taking something advisors know well today and moving it to the Web," says Boruff.

One ASP that is addressing advisor resistance with strategic planning is Austin, Texas-based Cofiniti, which offers a collaborative online financial planning application to banks, brokerages, and insurers. Cofiniti has a management consulting division, led by Jack Kramer, that is surveying advisors in companies adopting its technology.

Kramer says the research shows that 30% of advisors are "paper-based producers who find that the introduction [of new technology] only disrupts their sales efforts." Forty percent say their attitude toward new technology is dependent on external issues, such as company politics and competitive pressures. The remaining 30% are "digital reps" who are optimistic about the role technology will play in their business and are quick to adopt new technology.

Cofiniti is planning a push into the independent B/D and RIA arena. But why are only 30% of the advisors in such enterprises enthusiastic about Cofiniti's technology? "In a bull market, when everyone was making a lot of money, there was little reason to make any change," says Kramer. "Now that's starting to change."

But Cofiniti has made its goals more realistic, and aims to win over the 30% of digital reps and get them using its application first. "Institutions love this approach because it saves them money because you avoid disrupting sales," says Kramer.

Which brings up another issue about the challenges facing ASPs. The ASPs are generally small companies with most having a couple of dozen employees at most. It takes a lot of resources to provide the services these companies offer, and you need economies of scale to price it low enough for skinflint advisors to buy. Moreover, these fledgling companies are trying to crack a market populated by giants like Schwab, Fidelity, Raymond James, SunAmerica, and Waterhouse.

What most of the ASPs are trying to do is to get these big firms with large distribution networks to embrace their applications. Selling to individual advisors is not always efficient enough for companies with VC partners that demand a return on their investment. So the ASPs are trying to sell their platform to B/Ds on an enterprise-wide basis.

"There are some very large organizations that are turning to outsourcing and I think that's where there will be more success for ASPs," says Horn. "They can create this valuable channel of independent RIAs and at the same time, in sort of a barbell approach, end up with a large institutional clients to use the platform to deliver a captive distribution force.

"Let's face it. For an ASP model to work, it must have scale and achieve critical mass. Otherwise investors in that firm aren't going to be able to expect much of a return on their investment."

But why should these large firms outsource creation of an application when they themselves can offer it? That's the other trend that's emerging. The giants serving independent advisors are moving to create the online applications now offered by the ASP companies.

For instance, Lockwood Financial--a traditional service provider--is now offering MAX, its own online separate account management program, through independent B/Ds. (Read more about MAX at www.investmentadvisor.com.) Similarly, look at what Fidelity is doing with "folio" technology. Pioneered by startup FOLIOfn, folios allow you to create and trade portfolios online that look just like mutual funds or stock indexes. You can trade stocks in fractional shares and all the tax lot accounting is done for you, and it can easily be tied into a performance report.

While the idea was introduced by a dot-com, Fidelity is creating such a platform for its retail clients, and it's likely just a matter of time before it leverages the retail effort to create an advisor product.

Custodians and B/Ds are likely to offer more online applications for independent advisors in coming months and the trend is likely to accelerate rapidly in the next year or two.

Of all the online applications, none has evoked more interest than account aggregation. "For the most part, advisors have not embraced ASPs," says RJFS's Shelly. "But it seems like they're all on the edge of their seats when you bring up aggregation."

Account aggregation lets an investor create a consolidated account statement combining assets from different brokerages. Assuming you have online account access at Fidelity and Waterhouse, for instance, a user at an account aggregator like Yodlee provides account numbers and passwords for those brokerage accounts. Yodlee then collects your account data from Fidelity and Waterhouse and puts them into a single online statement.

What has advisors excited is that aggregation will let an advisor view assets held away from them. So you can see if a client's portfolio managed by someone else is underperforming the one you manage for that client, and you can coordinate tax loss selling with realized gains. In addition, aggregated statements can include data on credit card debts and other loans, as well as frequent flyer miles, mortgage balances, and insurance.

Following on the heels of Merrill Lynch, Schwab and Fidelity have signed agreements to partner with Yodlee to offer account aggregation for their retail clients. Both firms are working on creating aggregation for their advisor divisions. According to Pat Jancsy, a VP of product management and marketing at Fidelity's IBG unit, no aggregated account statement has been offered yet through financial intermediaries. This is the application that Fidelity and Schwab are working on now, creating an aggregated account statement that clients give you permission to view.

A Schwab Institutional spokesman says the firm is planning to deliver an aggregated account statement that will be available to advisor clients by the end of the year.

"It's not just an aggregated account statement that advisors need," says Donna Morris, a executive VP of product management and marketing at IBG. "There are other tools that can make the aggregated information more valuable."

What Fidelity, Schwab, and other B/Ds are trying to figure out is how to add value to the aggregated data.

The Fidelity executives decline to forecast a delivery date for their advisor-enabled aggregation platform. But the company is clearly trying to move data aggregation forward for advisors.

Simple screen-scraping technology--basically a process in which data is plucked from HTML pages or numerous financial institutions to create an aggregated statement--is too crude to be useful to financial advisors or to be able to add any value because every institution has different ways to report securities transactions.

According to Jancsy, Fidelity is working with Yodlee on ways to normalize the data across institutions. This will rely more heavily on direct downloads from other institutions rather than on screen-scraping the online account statements. A main goal, Jancsy says, will be to create an aggregated data stream that can then be downloaded into professional tools used by advisors.

Other large firms serving independent advisors are thinking along the same lines. At Raymond James, work is just getting under way to create an application using aggregated account data. Shelly, RJFS's technology chief, found that only about 20% of the client base of advisors have assets held at other firms. Still, he says, the RJFS advisors want to be able to offer reporting on those assets.

And, like Fidelity, Shelly is looking to add value to the data. He says RJFS is not looking at simple aggregation but wants to find a way to pull aggregated data into a performance report. "That's where account statements are going," says Shelly.

Account aggregation and other online applications are just emerging, and advisors are wise to exercise caution before committing their businesses to these new platforms. Jumping in with these ASPs run by small companies poses some risk to you unless it has been adopted by your B/D or custodian and has the scale to survive. But going with an ASP that's independent of your B/D or custodian is appealing because it leaves you the choice to practice as you please and makes you more independent. I wish I had some grand conclusion with great advice about what you should do about the ASP decisions. I don't.

Search and Deploy

Strategies you can use to give your own Web site a prominent place in the search-engine world

Advisors often ask me how they can set up their Web sites to be the first listing to pop up when a Web user types "financial advisor" or "planner" into an online search engine. My answer has always been that search engine optimization is a dark, secretive world, kind of like going to a TV repairman: He sticks his head in this mass of wires, and when he tells you what it will cost to fix, you have no idea what's involved in the job. Similarly, when you go to a search engine placement company, they may promise you that they will get you listed in the top 20 rankings, but you may have no idea what they are going to do for their money.

Over the last couple of months, I've spent some time talking with experts who help companies get to the top of the lists that search engines display. First, though, it's important to understand what a good ranking can do for you.

I don't believe that the main reason financial advisors need a Web site is to market to strangers who will find you via a search engine. The benefit you will get from your Web site will come from referring people to your site yourself--the site is a handy place where clients and prospects can gather further information about you and your firm. But that doesn't mean you should make no effort to promote your site.

Finding a financial advisor on the Web is different from browsing the Yellow Pages. Why? Because most independent advisors' Yellow Pages listings include only the business name and phone number. In contrast, a Web site can contain pages and pages of detail about you, your business, and your firm's philosophy. For a consumer, searching the Web for advisors in her town can yield a field of candidates.

So having your Web site listed with a search engine could generate a small amount of traffic from strangers. But what about the people who have heard of you?

Robert Blackburn of Loudoun Capital Management in Reston, Virginia, for instance, says he gets contacted only three or four times a month from consumers who stumbled upon his firm using a search engine. What generates much more traffic to his site is having his firm's chief investment officer interviewed in the local newspaper. Once consumers see the name of the firm mentioned in the paper, they use search engines to find his Web site.

So how do you get a good ranking? The answer is pretty complicated. Each search engine has different characteristics, and you need a multifaceted strategy to get good rankings from each. Let's use Blackburn's site as an example.

If you search for "financial advisors Virginia" on Yahoo!, Blackburn's site does not initially come up as a listing. That's because Yahoo! is technically not a search engine; it's a directory. With a directory such as Yahoo! or LookSmart, a human being actually reviews your site to determine whether it should be listed, and if so, where.

To qualify for a listing in the Yahoo! directory, all businesses must submit a request to Yahoo!'s Business Express service, which costs $200. Since last November, businesses have not been listed on Yahoo! without paying that fee. According to Yelena Shapiro of SearchEngines.com, a site optimization company in Chicago, that $200 is money well spent.

John Buchanan of se-secrets.com, author of a book he distributes at his site for $99 that details tips on search engine optimization, says Yahoo! is by far the most popular searching tool. For instance, Media Metrix data shows that 63% of all searches were conducted using Yahoo! in February, while recent statistics from Nielsen/NetRatings say 48% of all searches originated from Yahoo!

While Blackburn's site does not come up on Yahoo! because he has not registered with Business Express, it does come up on Yahoo!'s search engine, Google. Google is linked with Yahoo! and you get the Google search engine results as well as Yahoo!'s directory results whenever you run a search on Yahoo!

For example, after typing in "financial advisors Virginia," Yahoo! returns four results and on the bottom of the page there's a link that says, "Go To Web Page Matches." When you click on that link, it takes you to a page powered by Yahoo!'s search engine, Google. Blackburn's site is the 18th listing in Google, a pretty good ranking. Any time you're in the top 20 results, it's considered excellent because Web surfers often look at the first 20 results, and possibly the next 20. But they usually do not look much further.

Google is like most other search engines. It's powered by programs called robots, or spiders. They surf the Web all by themselves, "crawling" over Web pages and looking for keywords and phrases. Lycos, Excite, Alta Vista, and HotBot are search engines that use "spiders" to crawl the Web and create indexes of sites. Since the indexes are not created by humans, the methods you would employ to get a high ranking are totally different from methods you'd use to be highly ranked in a directory. Buchanan's book and Shapiro's site do a great job of covering the complexities of spiders, but here are some tips to get started.

The keywords and phrases that spiders seek are not just in the body of the text on your site, but are also placed in the HTML code of your Web page. Hyper Text Mark-Up Language, or HTML, is a simple programming language used to create Web pages. The HTML code on most Web pages comprises a number of "tags" that are associated with different aspects of a Web page. For instance, a "title" tag is the HTML code that determines what shows up in the blue title bar of your browser. "Meta tags" are another type of tag which are specifically created to allow spiders to identify keywords on your site.

Spiders also look for links to your site from other Web sites, and they measure "keyword density" by determining what percentage of your site's text is composed of keywords. They also look for the relevance of your keywords in relation to the body text on your site and the prominence of your keywords.

What the spiders do with this information is what makes search engine optimization so difficult: Different spiders give different weightings to each piece of data. For instance, says Buchanan, HotBot places heavy weighting on link popularity--if a lot of sites have links to your site, you'll be placed higher in the rankings--but less weighting on keyword density. Excite, he says, favors sites that have their keywords as part of their Web address, but it does not index meta tags.

All the sites create their own algorithms for ranking your site. Each search engine has its own set of idiosyncratic criteria for determining where you get ranked relative to other sites in a search for your keywords. To make matters worse, the search engines periodically change their algorithms to keep search engine optimization companies from mastering their formulas. What to do?

Until now, most advisors with Web sites simply ignored the search engines. But as Web popularity grows, that's likely to change. One option: Hire a search engine placement firm that you can easily shop for on the Web. Getting a firm that will deliver cost-effective results may be tougher.

Some advisory firms may want to give a technologically-inclined staffer with knowledge of HTML a week or two to study up on search engines and optimize the firm's site. This staffer would also figure out what keywords are most likely to be used by consumers, a crucial part of site optimization. The staff person would research how the search engines work and what keywords and phrases can be used to get your firm's site a good listing. The staffer might need to update the site every quarter or just once a year. It's unlikely that most small advisory firms will want to dedicate the resources on a monthly basis to stay at the top of the top search engines, although some optimization companies may try to sell you a monthly maintenance package. A lot of it will depend on how many other sites in your are are also optimizing their search engine placement.

One strategy is to create Web pages specifically designed for different search engines. This is a strategy used by many search engine optimization companies and by software packages you can purchase that automate the site optimization process, such as WebPosition Gold or AddWeb. With such optimized pages, your goal is to write text and place keywords and phrases in the right spots to appeal to the algorithms of different search engines.

These pages, by the way, are not part of your main Web site. The only way someone would navigate to these optimized pages is from a search engine, and these pages would typically contain a link to your site's home page. In addition to creating these optimized pages, you will still need to make the main pages on your Web site search-engine-friendly. You'll want to create the right tags and have text that appeals to search engines and directories, such as Yahoo!

Like I said, the world of search engines is dark and secretive.

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