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Safer Retirement Just A Click (Or 50) Away Websites Offer Help With Portfolio, But Steps Can Be Confusing By Bruce Mohl, The Boston Globe July 18, 2004  Boston start-up LTSave Inc. is promising consumers who purchase the company's financial advisory service that they can develop on their own a comprehensive and sophisticated retirement plan online in as little as 10 minutes. For the millions of ''inertia" investors out there (myself included), who spend more time planning their vacations than keeping track of their retirement investments, it sounded too good to be true. It was even relatively cheap -- $48 for a four-month subscription offering advice on multiple retirement accounts, including 401(k), pension, and IRA holdings. Annuities are not included yet, nor are individual stock holdings. Four-month subscriptions covering just one account are $18. In my test of the service, the 10-minute pledge didn't hold up. It wasn't even close. It took several hours to assemble and input my financial data, in part because my 401(k), IRA, and pension information was scattered among several accounts at different firms. I also had trouble getting the system to accept my 401(k) fund options, and had to enlist the help of Sunil K. Bhatia, LTSave's founder. Regular investors wouldn't have the president and CEO on the phone helping them. But even if it took longer than expected to input my data, the potential of the online financial advisory service was easy to see. Once I had answered questions about my income, my retirement plans, and my penchant for risk, LTSave told me where I stood and how my asset allocation should be adjusted. It also recommended which mutual funds to hold, which ones to sell, and which new ones to buy. At each step, LTSave was careful to note that ''all future projections are estimates." Shaw Lively, an analyst with Financial Insights of Framingham, thinks the type of service being offered by newcomer LTSave and other more established companies such as Morningstar Inc., the investment research and rating company, has strong growth potential. Many consumers realize that they are on their own in planning for retirement, says Lively, yet lack the skills and tools to do a good job. A survey late last year by Financial Insights found that less than a third of 1,000 employment-age adults had changed the fund selection in their retirement plans in the last 12 months and only a quarter had changed the amount they contribute. Consumers with lower incomes and less education were paying even less attention, according to the survey. ''There are a lot of people out there managing by inertia," Lively said. ''Study after study points out that people don't manage their funds as well as they should, and get hurt as a result." Independent online financial advisory services are attempting to fill the void. They use the power of the Internet to deliver the type of sophisticated investment advice that used to be available only to high-roller investors. LTSave, for example, says its system performs more than 1,000 calculations and evaluates more than 100 economic variables as it delivers personalized investment advice with a 10-to-20-year time horizon. Sounds impressive, but for unsophisticated investors it's a big black box. It's a lot like TurboTax software-- fairly easy to use, but the underlying assumptions are way over most people's heads. It doesn't help that some companies boast about their use of Monte Carlo simulations. Isn't that where Europeans go to gamble? Most online financial advisers are not well known because they sell their software to financial companies or employers, who then offer the service to their workers as an employee benefit. Relatively few firms, the most notable being Financial Engines of Palo Alto, Calif., and LTSave, are also offering their services directly to the public. Fidelity Investments, like many mutual fund firms, offers similar services. But as a fund manager, it has to walk a fine line legally between offering guidance, or education, to its customers and offering actual advice on which stock and bond funds to buy. The company's Portfolio Review product, launched in September, helps retail customers ferret out the best asset allocation for their retirement funds, and then leaves it up to them to decide whether to implement the strategy on their own or whether to enlist a separate subsidiary called Strategic Advisors (backed by financial adviser Ibbotson Associates of Chicago) to select and buy the right investments. Strategic Advisors charges a $400 annual fee on the minimum $50,000 account. Fidelity's enormous financial resources (it has spent $70 million over the last 10 months improving its retirement offerings), and its technical sophistication make it very attractive to the average investor looking for retirement advice. Fidelity, for example, makes it easy for customers to electronically assemble all their financial data in one place, a service LTSave isn't offering yet. Fidelity also offers a lot of hand-holding for investors anxious about turning their retirement nest egg over to what is basically a software program. But Bhatia at LTSave, a former Fidelity executive himself, said the mutual fund giant can't be truly objective in offering advice to its customers because it wants to keep all their money in-house. ''Our whole mentality is we're independent, beholden to no one but our customer," he said. Jamie Cornell, a senior vice president at Fidelity, said the company has built in safeguards to make sure its advice offerings are totally objective. ''We empower the client to make the decisions," he said. ''We put it all in the client's hands." Damian Barry of Dedham, who runs Winstonflowers.com and formerly worked on Wall Street, said the independence of LTSave was what attracted him during the firm's testing phase earlier this year. ''This objectivity is fairly unique," he said, adding that he intends to start paying for the service when his free test subscription expires. Citizens Schools, a Boston-based nonprofit delivering after-school programming for urban middle-school students, began participating free of charge in an LTSave test last year, offering the service as an employee benefit. Emily McCann, the chief financial officer, said it has been a useful tool for the generally young staff. ''It was almost like going to a Merrill Lynch broker," she said. But, she added, ''If it's not paired with support, I think it can be a little bit confusing and nebulous." I agree. I had technical problems inputting my personal financial data and also some difficulty matching the information I had at my fingertips with the information the software program was asking me for. Talking it over with a company official, which wouldn't have been easy if I wasn't a reporter, was very helpful. LTSave recommended a sweeping reorganization of my retirement assets to reduce the risk of running short of money. The overall approach was clearly explained, but the individual buy-and-sell decisions were not. It would have been nice to know why a specific fund was being recommended and what its track record was, without having to look that information up on my own. Copyright
© 2002 Global Action on Aging |
