Asset Allocation Tools: Helping Investors Put Their Eggs in the Right Baskets
Year end is often a time for investors to reflect upon their portfolios and determine whether their assets are properly allocated and how they might be rebalanced. Over the years, the Internet's capacity to assist in this important task has grown dramatically and online asset allocation tools have been a boon to many self-directed investors.In our November e-Monitor Report, we reviewed the online tools available to the clients of major brokerage firms - both "self-directed" and traditionally "full-service". Perhaps not surprisingly, the self-directed firms provided better and more robust tools than do their full-service cousins. Indeed, of the eight full-service firms we routinely track, only two provided any asset allocation tool online. Given their advisor-based model, however, this is not surprising, nor should it too negatively reflect on these firms overall offerings.
The tools from Fidelity and Schwab stood out as best in class. They both provide an investor profile questionnaire, recommend a target asset allocation, and allow clients to choose their own targets. Both also provide a thorough analysis of the client's current portfolio and outside holdings, and suggest a model portfolio of mutual funds. Clients can also print a summary report of the analysis. These are all features we have identified as the most important in an asset allocation tool.
Among some of the best practice recommendations we offer in our analysis, firms should consider providing the following options when developing such tools:
Granted, the above would create a very robust tool and one that firms providing advisor-based relationships may not want to offer. We feel these firms can still provide some light analysis - say comparing your current allocation to a target - and using that information to start a discussion between the client and the advisor. For example, allow the client to email the results directly to their advisor to schedule a phone call or follow up discussion. This gives the client some valuable information and allows the advisor - rather than the website - to remain the focal point of the relationship.Year end is often a time for investors to reflect upon their portfolios and determine whether their assets are properly allocated and how they might be rebalanced. In our November e-Monitor Report, we reviewed the online tools available to the clients of major brokerage firms - both "self-directed" and traditionally "full-service". Perhaps not surprisingly, the self-directed firms provided better and more robust tools than do their full-service cousins.
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