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September 01, 2002 at 04:00 AM
Foliofn is hitching its wagon to the booming separately managed account market with the recent launch of Folio Allocator. The online brokerage firm’s founder and CEO, Steve Wallman, is convinced that his company’s new separate accounts platform will “revolutionize the separately managed account business and allow the multi-manager account business to take off.”
Wallman figures other separate account providers can’t match Folio Allocator’s cost benefits, its ease of customizing accounts for clients, or the tech platform’s ability to deliver multiple portfolios in a single account. “The Allocator allows the sponsor or the advisor to, with one click, synchronize an unlimited number of accounts to an asset allocation model that has within it a variety of different individual models–folios, if you will–that are potentially managed by different managers or different firms,” Wallman says.
Unlike traditional separate account platforms, which generally are managed by an account manager alone, folios allow levels of management–the customer, an advisor, or the manager of the portfolio can control the account, Wallman says. And with Folio Allocator, “you can even split that up so a manager has control over a portfolio within an account and then a sponsor or an advisor can have control over the asset allocation between the different managers within an account,” he says. “The sponsor or advisor can say, ‘I want the domestic growth fund to be 30% and the domestic value to be 70%.’ Later on [they can] change that to be 40%/60%. You can do all of those things with the folio technology. Some of them [are] hard or impossible to do with the more traditional technology for separate accounts.”
Since starting Vienna, Virginia-based Foliofn two years ago, Wall- man has had to do some fancy footwork to keep his business afloat. Wallman’s original plan was to use folios–baskets of up to 50 stocks that can trade online–to compete head-on with the mutual fund industry. Folios offer the diversification of a fund, lower transaction costs for small-volume trades, and allow more room to manage taxes. But folios proved too complex for retail investors to grasp. Wallman is now bent on marketing his platform to financial advisors, mutual fund companies, and money managers, as well as institutions. Advisors have also had a hard time embracing the folios concept, but that may be changing as Wallman says Foliofn now gets more calls from the advisor channel than the company can handle.
Foliofn’s technology is also generating so much interest from mutual fund companies and those in the separate accounts business that Wallman’s adding new bodies to the firm’s sales and marketing team. “We are so far ahead of the rest of the world in terms of technology that we need to sell [the technology platform] instead of continuing to build it.” But adding new employees in the sales and marketing area will mean job cuts in other divisions, he says. Foliofn has yet to turn a profit, but Wallman says the brokerage firm “continues to grow in customers, revenues, and assets week over week,” despite “the headwinds of the market.”
Swimming Upstream
Rob Hegarty, director of investment management at the research firm TowerGroup, says Wallman will indeed have a tough time launching a new product in such a turbulent market atmosphere. “I honestly think [Foliofn] is swimming upstream given the current market conditions and the market environment for asset allocation,” he says. “They are coming out with a product at a time where the lack of interest and lack of confidence in the market is really doing a number on the entire marketplace.” But Hegarty does believe Foliofn is filling a much-needed product gap with Allocator. “There is a need in the marketplace for a tool for advisors that makes it much easier to allocate their clients’ funds across multiple managers.”
Despite hitting upon what appears to be an untapped product niche for advisors with Allocator, and managing to keep his business alive when other folio companies have died off, Hegarty still isn’t convinced the long-term prognosis for Wallman’s company is a good one: “They’re probably a long way” from turning a profit. Launching a new product like Allocator “requires a pretty heavy up-front investment; and this is their second go at a product market entry. They took a run at the retail market, and that failed.”
But it looks like Foliofn is taking another stab at the retail market. The company had plans to launch a radio advertising campaign in the Washington, D.C., area in mid-August and an online ad campaign was scheduled to start at the same time.
A Better Tool
Advisors can access Folio Allocator by logging on to Foliofn’s advisor-only Web site, www.folioadvisor.com. “We have a number of advisors who have been able to take [Folio Allocator] and create a dozen account templates and then, with that in place, do the asset allocations quickly among the different accounts and also manage the underlying portfolios within each account separately and easily,” Wallman claims.
