Online Wealth Management Comes of Age

The times they are a-changin’, and the world of financial advice is no different. Following in the footsteps of banking and do-it-yourself stock trading, there is an emerging trend toward wealth management firms serving clients with the aid of web technology.

It’s Becoming a Virtual World

Do you manage your checking account online, use web-based bill pay services, or shop for insurance on the internet? Most people do now. According to the Federal Reserve, over 60% of families used the internet to access financial services even back in 2010. Web-based investment management services may be relatively new, but the inevitable trend toward accessing financial services online is well established:

  • 52% of people shopping for automobile insurance start the process online and over 30% of shoppers only use online channels (J.D. Powers 2012 U.S. Insurance Shopping Study)
  • 42% of credit card accounts were opened online and online bill payments now account for half of all bill payments (2011 Fiserv Consumer Trends Survey: Financial Services Continue the Digital Shift)
  • 50% of customers shopping for cars make their decision online (McKinsey & Company, November 2012)

Providing Financial Advice Online

Online financial advice providers generally take one of two different approaches. They either make available full financial planning and investment management services – similar to what a knowledgeable local investment advisor might provide – using technology to effectively serve remote clients. Or they strictly manage your investment account and use technology to eliminate a personal advisor from the relationship.

The first type of advisory firm uses technology to enhance the client experience. They provide a wide range of wealth management services to clients coast-to-coast. These firms use the internet to make the delivery of financial advice more convenient, while maintaining the personal advisory relationship that is necessary to truly deliver holistic financial guidance.

The second type of firm, which is almost always a start-up, uses technology to remove the personal advisory relationship and just deliver basic investment recommendations at a low cost. These internet-based investment management firms generally use an algorithmic or “black box” investment approach. In order words, they use a computer program to select your investments and don’t provide financial planning services.

Security Concerns

Understandably, one concern with using an online wealth management firm is the security of your personal information and the safety of your assets. Here are a few things to consider before using any online financial provider:

  • Is the website secure? The site should be protected with an SSL (Secure Sockets Layer) certificate (e.g., VeriSign) so data transmitted is secure. To tell if a web page is protected, look for a little locked padlock symbol at top of the web browser. Personal data should never be sent via unsecure email. Sensitive information should be transmitted using a password-protected website or via secure email.
  • Who actually holds your assets? Many Registered Investment Advisors (RIAs) use third-party custodians (e.g., TD Ameritrade or Charles Schwab) to hold client assets. This provides an extra layer of assurance that your assets are protected since your advisor doesn’t have the ability to access your funds. The advisor has authority to place trades, but can’t move funds without your authorization. Often firms associated with brokerage firms “self-custody,” meaning the firm both provides advice and is responsible for the safekeeping of your funds.
  • Does the firm have a physical address on their website and a phone number you can call? Even if you only interact electronically, it is a comfort to know there is a physical office and phone number you can call with questions.
  • How long has the firm been in business, and what experience does it have providing financial advice? Many of the new firms are venture-capital backed, technology start-ups run by folks who are probably very skilled at programing a website, but may lack experience actually managing money.

Is an Online Investment Advisor is Right for You?

Clearly, an online financial advisor isn’t right for everyone. If you are happy with your current advisor, there may be no advantage to switching. But for those who are searching for a financial advisor, an online wealth management service could be appealing to certain folks:

  • Web-savvy investors who desire financial advice from a top notch firm, but don’t want to visit an advisor’s office during business hours.
  • Those who are not satisfied with local advisors in the area, and believe that a trustworthy firm with an online offering will better meet their needs. You may also have concerns about the level of privacy and discretion when working with a hometown advisor.
  • Do-it-yourself investors who have been using online trading tools, but now need to get serious about retirement planning and investments. You want guidance from experienced professionals.
  • Those who feel that life is just too busy. You value the convenience and time saved from working with a technology-enabled wealth management firm – while still receiving high-quality service.

Closing Thoughts

I personally believe the true value of working with a financial advisor comes from the personal relationship. If all you’re looking for is an idea of what funds to buy, you can get that information quickly and cheaply from any number of traditional or online sources. Whereas a dedicated financial advisor and client service representative can simplify your life, provide peace of mind during volatile times, and deliver ongoing guidance.

Here at Savant we recently introduced e-Savant Advisor to provide online access to Savant’s investment strategies and personalized financial planning. If you have friends or family who might benefit from Savant’s services but don’t live near one of our offices, I encourage you to let them know about e-Savant Advisor and point them to to learn more.

[Read More...]

Posted in: Article
Actions: E-mail | Permalink |