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Virtual Reality

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One way technology can improve the quality of your life is with a Virtual Private Network. For an independent advisor, a VPN make sense. I know how valuable they are from my own experience.

In fact, right now, I am editing this story from my home even though the file is actually located on a network server in my office. That’s what a VPN lets you do; it lets you access files from a remote location.

I hooked up a VPN between my home and my office about six months ago and have been using it pretty much every day. In fact, I’d be lost without it–lost to my wife and kids, that is.

My office is located only about a half mile from my home. It’s a 90-second drive door to door. But I like to work late at night or early in the morning and don’t want to have to run into the office every time I need a document.

The VPN allows me to steal away for 20 minutes of work between taking my son bike riding and playing basketball with my daughter. I can access all of the files that I would have if I were at the office. Right now, I am writing this story while my wife puts the kids to bed. I can spend about 30 minutes working on a file that I would not have access to without the VPN. I am virtually at my office, hence the name. If you’re like me and you like to work at home as well as in your office, then a VPN is not that hard or expensive to create.

Zip It in a Briefcase

But before I tell you about the virtues of a VPN, let me offer a couple of less costly alternatives. Before I try to convince you to spend your money on VPN technology you may not need, you may be able to get away with some practical alternatives.

If you’re a sole practitioner or if you have only one or two staffers in your office, you may be able to get way with making copies of files every night and taking them home. This is a simple low-cost solution that will work for a lot of advisors.

Most computers now come with Zip drives that use disks capable of storing up to 250 megs of information, or you can get your computer built with a drive that writes to CDs and then you can store up to 700 megs of information on a CD. Both drives are sold as add-ons to an existing computer. You can keep your most important client files on a Zip disk or CD and shuttle it back and forth from your home to your office.

The best way to know if this solution will work for you is to try it out for few weeks. If you want to do this, try to use Microsoft Briefcase. Most people have seen the icon for Briefcase on their desktop but few actually know what it is. In short, it’s a program that lets you synchronize files on two computers, and Microsoft gives it to you with Office. If you work on files from your home, you can use Briefcase to synchronize the files with their counterparts on your office computer when you finish working on them.

Say, for instance, that you want to update your office computer with files that you worked on at home. First, you would copy to a disk what you worked on at home. At your office, you would just insert the disk into your office computer. Briefcase will automatically update the files on your office computer with the modified versions. You do not need to move modified files out of Briefcase or delete the existing copies on your office computer.

A couple of issues could come up, however. First, you may find that the 250 megs on a Zip disk or even the 700 megs on a CD are simply not enough. You’ll want to have all your portfolio reports in your home as well as the office, or you’ll want to have other files that eat up more disk space. Also, writing to a CD-ROM requires patience. It takes about 80 minutes to write 700 megs to a CD using a 16X CD-ROM drive, which is the speed most of them are now coming out of the box with.

The real problem is that it gets confusing knowing which is the most recent version of a file. For instance, maybe you’ll compose a letter to a client and want to finish it at home and you put it on your disk. If you don’t open it for a couple of days, you may forget which version is newer–the one on your disk or the one at the office. Even if you use Briefcase, you could still become confused.

When I’ve to tried to remember to bring home files or tried using Briefcase, this was a problem for me. Most advisors are probably more responsible than I am, however. And Briefcase can probably work better if you use it consistently and learn all its tricks, which I admittedly did not. Still, my guess is that for most financial advisors, schlepping files back and forth from the office on a disk will cause confusion and be a nuisance.

Lift a Laptop

Another alternative is to buy a laptop and carry it back and forth. Steve Gordonson, a partner in our firm, is quite happy with this system for working at the office and home. You don’t have to worry about synchronizing files because you’re working on the same machine and same files in both locations.

To do it right, you’ll need a powerful laptop. Steve recently bought a Dell Inspiron 8000. The notebook can be built with 256 megs of RAM, a 20-gigabyte hard drive and a one-gig processor to be as fast and powerful as a desktop computer. At a cost of about $4,300, it’s pricey, but it may make sense if you use it at home and at the office and it’s taking the place of two computers.

By the way, my reference to Dell in no way should be taken as an endorsement. We own about eight Dells in our company and have also purchased computers from Gateway and Micron. They all sell powerful notebooks. Dell overall has been the best experience for us but Dell is far from perfect. Service is an issue with all of these companies, including Dell.

Back to using a notebook for home and the office: If you’re on the computer several hours a day, using a notebook may not be comfortable, even though it comes with a 15-inch display. You can buy a docking station for about $200. With this piece of hardware, you plug your laptop into the docking station and you can use a normal size desktop keyboard and an external monitor. With the docking station hooked into a keyboard and a 19-inch monitor, you’ll forget you’re working on a laptop; it will feel just like a desktop machine.

Using a laptop to shuttle back and forth from home is a good solution if you’re a sole practitioner and all of your important client files reside on your office computer. I’d guess this would be the way to go for about 80% of our readers. But there are some issues and limitations if you choose this path.

First, the Dell Inspiron and other power notebooks are not for frequent travelers. The Inspiron is heavy, weighing in at 7.9 pounds–and that’s without the extra battery, power cords, and other accessories you’ll often carry. It’s no problem carrying this computer from your car to your office, but it can be heavy to haul for a 10- or 20-minute walk across an airport or commuting by mass transit from the office to your home.

Also, this solution will have its limits if you have a larger firm and are pulling files from your server all day. In Steve Gordonson’s case, he’s a programmer and leaves code that he’s writing on his laptop. He’s the only one accessing the files he uses most often. When Steve needs to bring home a file that’s on our server, he’s back to synchronizing files between his laptop and the office computer–the server.

Servers for The Big Guys

For advisors in larger firms who are accessing data off their network file server, the synchronization issue could be a problem. For instance, if you’re running db-CAMs or Centerpiece on your office computer, the laptop should work just fine. But if you run these programs and have all your client data on a network server at the office and the company staff is updating the client data every day, it can get very messy synchronizing those files with the server.

Instead of having to make copies of documents and bring them home on a CD or Zip disk, this is when a VPN will become a good choice.

My company has 14 PCs hooked into a Windows NT network. All of the documents that employees work on are pulled from a server. Using a server for a small office is smart–mandatory if you have more than a few people accessing the same files.

A file server is a computer where all of the data files used by your staff can reside. So, if they want to type a form letter welcoming a new client, for instance, the form letter is on the server and they run Word on their local machine to call it up. Everyone in the office has access to the server files because all the office computers are connected to the server.

A VPN makes it possible to access your server files from a remote location or from multiple remote locations. The VPN uses the Internet to connect your remote location to your office server.

You can create a VPN using hardware or software. In my company’s VPN, we used hardware. Hardware is the best solution when you have multiple PCs on both sides of the VPN.

In my home, I have several PCs where my wife and I work. If I had used software instead of hardware to create the VPN, I would have needed to install a program and configure it on each of the PCs. In addition, the VPN software demands a lot of processor resources, and that can slow you down maddeningly when you’re working on the VPN.

An alternative is using hardware at the main office–the side of the VPN where you have many computers–and software at the remote location. This is probably a workable solution if you have a home office with one machine that has a fast processor of at least 750 MHz. The VPN client software can be bought from the same company that makes the VPN hardware.

If your office is running a network on Windows 2000 Server, the current version of the network operating system made by Microsoft, then you get the VPN software for free as part of the system. But configuring this is fairly complicated even for a network consultant.

Router Remedy

The hardware you’ll need to run for your VPN is a router. A router is a switch that receives and sends packets of information over the Internet. It takes an e-mail message or a Web page and routes it to the right PC in your network.

Basically, every packet of information from an e-mail or Web page that comes over the Internet has a source and destination address. The address is called an Internet Protocol address, and every computer has a unique IP address. The computer that generates a message is the source address. Based on the destination address that’s in the message packet, a router forwards the information to a particular PC on your network.

A VPN router has special software that takes this a step further. It identifies a source’s IP address. Your PC at home has a specific IP address that the VPN router is set up to recognize. The router is programmed to allow only that unique IP address of your home PC into your office network via the Internet.

In addition, the router software will encrypt and decrypt messages going to and coming from the home PC. Even though the information is going across the Internet, which means it might bounce information packets to a series of servers and routers on the Internet while going from your office PC to your home PC, no one but you can read the encrypted information. So, if you’re at home and call up a file with personal client data, it will be sent over the Internet with encryption. When the information hits your home, your VPN router or VPN software will decrypt the information.

If you go for a VPN router at your office and another one in your home, then it will probably cost about $1,700 for the hardware. That’s what we paid for two SonicWall VPN routers. That breaks down to $1,200 for the office VPN router and $500 for the home office VPN router. The home office router can handle no more than five PCs, which is sufficient for most home office networks. The office router costs more because it can handle up to 50 PCs, allowing me to see 14 PCs in our office. With SonicWall, you must buy the more expensive router if you have more than five PCs on your network.

If you have only one PC on the home side of your VPN, then you can get away with using software instead of hardware–as long as you have a high-speed connection and fast computer in your home. The VPN software comes with the router. However, Gordonson, a veteran programmer who has administered networks, tried using the SonicWall software to access our VPN from his home and he found it slow and difficult to use.

Speed is an important consideration in your VPN. You can basically forget about using a dial-up connection to access a VPN. If you have a DSL line at work and cable modem at home, the VPN will work at the speed of the slower connection.

So if your office DSL connection is 384 kilobits per second while your cable system at home is twice that speed, the best you’ll get is 384k. This is the speed of my VPN, and I can tell you that at times it is slow. Displaying pages with large graphics can take very long and be frustrating. However, if you’re looking at plain text–Excel spreadsheets, Word documents and other files no larger than one megabyte, it works great.

There is one other way to set up a VPN that is likely to be used by larger firms. It requires dedicating a server to your VPN and running WinFrame, which is also known as Microsoft Terminal Services. With this set up, your applications all run on your server, which can dramatically improve speed over a VPN where you run applications off your local computer. But this type of setup costs a lot more to set up and it’s probably best suited for firms with their own IT staff.

Setting up a VPN is probably a full day’s work for a outside consultant and will cost about $1,000, and setting it up using WinFrame is likely to cost $4,000 or more–plus the cost of a high-end server ($4,000) and all of the licenses for the software applications you’ll want to run on the VPN. The $10,000 or $15,000 or so may not mean that much to a large firm that has several advisors accessing the VPN.

Now that you understand how it all works, consider some alternative uses for a VPN. The VPN can do a lot more than just connect your home and your office. You can have a remote worker, for instance. Do you want to open a sales office on the other side of the country? Do you want to hire a secretary who works from home or who lives on the other side of the state? Would you like to launch a partnership with an accounting firm and allow the firm to access client data? The VPN can enable all of this. Plus, you’ll be able to sneak in some work while your spouse tucks the kids into bed.

Lend Me Your Ear

The nation’s largest online mortgage lender launches an advisor channel

The sky isn’t falling. In fact, in case you haven’t noticed, the gloomy predictions were wrong. You’re doing just fine.

Everyone in this industry knows about the ominous studies released over the last couple of years that, in a nutshell, predicted that independent advisors would become easy prey or perish in a Darwinian struggle for survival. The studies, which incidentally garnered great publicity for the fund marketer that produced them, said independent advisors could face competitive extinction unless they found a specialization or merged to achieve greater scale and offer a wider array of services.

Through all of the hubbub about independent advisors coming under attack, I’ve always maintained that you would find ways to fight back, and that the Internet would be your ally. What’s happened?

Online discount brokerages have been creamed. Their stocks trade at a fraction of where they were at the height of the tech revolution. While online advice tools, according to the doomsayers, were supposed to lead the way toward empowering self-directed individuals, the tools instead have backfired, literally becoming implements of self-destruction, and many self- directed investors now are scrambling for professional advice.

Meanwhile, at the other end of Wall Street, the giant brokerages that were also supposed to outflank independent advisors have been discredited. Consumers now understand that the big brokerages are underwriting stocks and recommending them, and the brokerages and their analysts have a credibility problem. The fact that the stock market did not bounce back after the big dips of the past 18 months, as it did over and over in the 1990s, is settling in with investors burned by wirehouse stockbrokers, who had loaded them up with growth stocks underwritten by the big houses. That sad realization is now also hitting the self-directed investors who got hooked on the adrenaline rush of a runaway bull market.

If you’re an independent advisor, there’s a good chance you already know all this. Since you didn’t have a corporate home office persuading you to sell hot stocks to your clients, there’s a good chance that you’ve been picking up new clients in recent months because you stuck to your guns and stayed broadly diversified.

But before you congratulate yourselves, please keep it all in perspective. While I have long believed the Internet and entrepreneurial chutzpah will help independent advisors fend off the attack, you are indeed facing heightened competitive pressure. Banks, for instance, are moving into your business by offering investment advice and financial planning. So are insurance agents, CPAs, and mortgage brokers. Happily, however, you are being given access to some Internet tools of your own to fight back.

Kendall, Todd, a marketing company, has been licensed by IndyMac, the nation’s largest online mortgage lender, to distribute a mortgage lending service through independent advisors. It’s sweet revenge.

For years, banks have been moving in on your turf by putting kiosks in their lobby and referring savers to their investment arm. With Glass-Steagall falling, combinations of banks, insurers, and investment companies have become easier, and the new law governing such mergers, Gramm-Leach-Bliley, not only makes such mergers easier but also permits a bank to share information about its clients with its investment affiliate, fostering greater competition for assets you want to manage and taking away assets from you.

Now, however, you have a chance to take some money from the banks. You can help your clients make mortgage decisions and, in so doing, help your business grow while your clients get a deal on a home loan.

Todd Ballenger, CEO of Kendall, Todd,

says that every year about one-quarter of all U.S. homeowners get a new mortgage, refinance, or get home equity loans. That means one of every four of your clients is making major decisions about what is likely the largest equity investment he or she owns. Ballenger says it is only natural for financial planners and investment advisors to be involved in mortgage decisions with their clients, and that being involved in the mortgage selection process will bring you great opportunities for investment planning and financial planning.

Ballenger, in the late 1980s, was a financial planner in Chapel Hill, North Carolina, when his firm started helping clients find mortgages. Ballenger says he saw that mortgage planning–helping clients get the best deal on a mortgage to generate free cash flow that can be funneled into investments–was a successful line of business. His firm became the state’s “lender of the year” in 1988, soon after entering the mortgage business. The company grew to 110 employees, and eventually dropped financial planning and made a business of helping financial planners in North Carolina offer mortgage planning to their clients.

Ballenger says much of the growth in his company occurred as interest rates fell in the early 1990s, a plunge in rates not seen again until the recent spate of interest rate cuts by the Federal Reserve Board, which is what makes this such a timely opportunity for advisors. In 1999, Ballenger sold his mortgage lending company to a publicly held online mortgage lender, which has since gone to dot-com purgatory. But Ballenger and a few associates have regrouped and formed a new venture, Kendall, Todd.

Kendall, Todd is a marketing company that has struck a deal with IndyMac Bancorp Inc., a $9 billion publicly held mortgage lender with a national reach. Advisors that sign up for the program are not mortgage lenders and make no commissions directly on the sale of a mortgage. Since you’re not a mortgage lender and not actually a named agent in the transaction, you don’t need to be licensed. The service is free to you.

While an advisor may want to charge a fee for spending an hour or two on mortgage counseling, many advisors say they already are offering to help clients with these decisions at no charge. Ballenger suggests advisors charge a $300 fee for counseling clients on their mortgages.

With $7.4 billion in assets and a Big Board market cap of more than $1.5 billion, IndyMac Bank is an FDIC-insured online consumer bank and one of the leading mortgage bankers in the country, due mostly to its franchise over the Web. IndyMac says it generated $3.5 billion of Internet mortgage production in the second quarter of 2001, a 141% increase from a year ago. IndyMac Bank is ranked as the number one overall online mortgage lender by the Gomez Report of Fall and Winter 2000 and for Spring/Summer 2001. Gomez is an online rating service. In the mortgage trade press, IndyMac is the recipient of Mortgage Technology’s 10X award and Inman News Services’ Most Innovative Use of Technology in Lending award.

IndyMac has built an extensive mortgage lending site that advisors can use, complete with tools that allow consumers to find a mortgage. There are calculators and an array of choices of rates–with points, without points, and the usual list of variables involved in a mortgage decision. There’s also a 12-minute application form that can be filled out online.

Kevin Timmerman of Steel Capital Management in Dubuque, Iowa, was one of about 10 advisors who participated in an online tour of the program led by Ballenger. Timmerman was enthusiastic.

“I like it because it keeps my clients out of the bank and the banks have become a competitor to me now,” says Timmerman. He says that at a time when the stock market is struggling, showing clients that his firms helps with other elements of their financial lives adds tangible value to his relationships.

Timmerman also says that the mortgage deal through IndyMac looks good for clients. The program charges no origination fee on a mortgage, which is normally a fee of from 0.5% to 1%. “Because IndyMac doesn’t have a loan officer on these transactions,” says Ballenger, “they don’t have to charge an origination fee and mark up the loan as much. They have no brick-and-mortar retail branch because the financial advisor is distributing the loan.”

But there are a couple of sore points. Chris Cooper, an advisor in Toledo, Ohio, says IndyMac and Kendall, Todd should be paying to appear on his site. “Since we don’t receive a commission on the sale of a mortgage, then all they really are looking for is advertising space as they would if they were distributing their service through a portal site or search engine,” says Cooper.

Cooper and a couple of other advisors were also hesitant because signing up for this program means IndyMac is the sole bank lender. “It doesn’t shop the market,” says Cooper.

Ballenger has answers for both of these objections. First, he is explicit in not paying commissions to financial advisors because that would require a license to be a lender. “The advisor has no license to lend. All he or she is doing is examining the mortgager possibilities and perhaps helping the client complete the application,” says Ballenger.

He says that IndyMac has a vast array of loans for a client to choose from, so it covers the market in terms of the different types of loans. As far as getting the best rate and lowest cost loan after all expenses have been added, IndyMac offers a guarantee. IndyMac says that if its loan is not $300 better than any other loan, IndyMac will cut a check for $300 to your client. An advisor client can go through the IndyMac application process, see what rate they would get and lock in their IndyMac deal. Then, the client can do comparison shopping. So you can get your loan commitment and have your loan approved and still back out of the deal at no cost–and you can then exercise the $300 best-deal guarantee.

Ballenger says IndyMac rates should beat banks because lending officers and mortgage brokers mark up loans to get paid extra. “A mortgage lender makes money on the up-front origination fee and by upselling the rate,” he says. Upselling is selling a loan at above the rate that the bank hopes to make the deal at. Every one-eighth of a point above the rate for the week earns a commission for a mortgage broker of about a quarter or a half of a point.

Ballenger says broker/dealers are beginning to approve the use of Kendall, Todd’s offering on rep sites. Since NASD regulation is triggered when a rep receives a fee, the no-fee arrangement should not trigger issues of “selling away” and should technically not fall into the NASDR description of an “outside business activity.”

You may be small and independent, but the market is bringing you tools to fight back. My bet is we’ll see more services like this soon, and that the Web will continue to help you fight the giants.


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