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A Richer Future for Online Investors Soon to be available for all: More elaborate tools for enhanced research and -- perhaps most important -- for custom advice So far, the advent of online investing has registered something like 7.5 on the financial-services industry Richter scale. As shocking as the changes have been, they've been relatively limited. The crux of the game is low prices, quick and easy trades, and basic portfolio tracking. But it seems to me, Web-based brokers are merely scratching the surface of what online investing has the potential to be. It seems that way to a lot of other people, too. What I hear from industry executives and consultants is that future generations of investing Web sites will make today's offerings look like Microsoft's DOS operating system compared to Windows 98. What will really distinguish the top outfits in the future will be how well they help us become smarter investors. Here's my forecast for how the Internet's second-largest business (behind pornography) will evolve over the next few years. "INDUSTRIALIZATION OF ADVICE." The most dramatic changes will occur in services aimed at the biggest pool of investors: the millions who track their portfolios with their home or office PCs and trade stocks maybe a few times a year. For these investors, online brokers are racing to provide elaborate new tools for stock analysis and investment advice for free, or a nominal fee. Forrester Research analyst Michael Gonzala calls this the "online industrialization of advice."
How? They'll do it with "context-sensitive analytical tools" that will help investors evaluate their holdings, says Alex Stein, a principal of Gomez.com, which tracks online brokers. Translation: Online brokerage software of the future will know what you own, what you like, and what your investment goals are. Then it will suggest how to revise your portfolio. E-MAIL ALERTS. Consider these examples of what we might see. Over the course of a year, you buy a series of blue-chip stocks after their share price falls sharply. Online brokers will track these trades and send you an E-mail when another blue chip takes a similar fall. If Amazon.com can figure out what books you like and make reasonable recommendations, brokers can do the same with stocks. Or this scenario. Your $200,000 portfolio of mutual funds is invested in what you think is a well diversified array of funds. At the end of the year, your online broker E-mails you a report that analyzes the underlying holdings of your funds and assesses your funds' performance compared to its peers. The report tells you that more than half of your assets are in technology stocks and less than 10% are in small caps. In addition, the report suggests alternative top-rated funds you can use to achieve your diversification goals and funds with better overall performance results than the funds you own. Schwab already offers a variation of this service called Fund Performance Review, which rates funds against various benchmarks and recommends specific funds. Next month, Schwab plans to offer a similar "report card" on equities as part of a major redesign of its Web site. BEYOND BASIC TOOLS. Another way online brokers will improve their services is through greatly improved research tools. Most now provide access to basic stock evaluations that hardly give investors the information they need to make intelligent trading decisions. Historical stock charts alone won't cut it in the future. Investors can look forward to versions of "The Stock Shop," a CD-ROM developed by investment guru Peter Lynch that helps analyze individual stocks. Using real-time financial information, the program evaluates important stock fundamentals, such as how a company's current price-earnings ratio compares to its historical norm or whether its receivables are climbing to dangerous levels. A version of this approach called Research Wizard is available on Microsoft's Money Central Web site (investor.msn.com).
All of these new features will move online brokers steadily onto the turf of Wall Street's traditional brokerage firms and the thousands of brokers they employ. The Web sites of the best online discount brokers will be heavily personalized so that investors will have the ability to basically create their own brokerage service, using tools ranging from simple to incredibly sophisticated. BETTER WEAPONS. Not all online brokers will follow this course. Some will keep their services stripped to a minimum to keep costs -- and prices -- as low as possible. Others will target specific segments, such as the fast-growing market for day traders. In fact, day traders will soon have a new tool that'll make them more effective: a service that tracks institutional block trades in real time and indicates pricing pressure on individual stocks in five-minute intervals. Such information is now available only to institutional investors through the Autex service. For a sample of what's coming, check out www.thomsoninvest.net/iwatch. Brokers carrying the new Iwatch service will be announced in coming weeks.
They may be slow to do this for fear of upsetting their brokers. But the Merrills and Goldman Sachs of the world have the ability to electronically compare their customer's portfolios against the investment advice generated by their firm and use the Internet to share their findings with customers. At a simple level, if an analyst changes a recommendation on a stock, the Internet can be used to spit out E-mail messages to any customer who owns the company's shares. For many investors, this approach will be a more appealing, safer, and less demanding way to invest than relying on the passive investment tools offered by today's cyber discount brokers. Either way, investors have a lot to look forward to online.
Geoffrey Smith covers a wide variety of topics, including personal finance issues, from Business Week's Boston bureau _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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 Geoffrey Smith covers personal finance and other topics, from Business Week's Boston bureau WEB POINTERS Sites mentioned in this column: Investor.msn Financialengines 401kforum Iwatch | |||||||||||||||
