Wall Street & Technology's Wealth Management Weblog

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Instant messaging is now widely used in both personal and professional settings. Convenience is the great appeal of instant messaging – it allows people to multitask and carry on multiple conversations simultaneously. Aside from chatting with friends, work colleagues are communicating with each other and businesspeople are making deals – sometimes in different parts of the world – without even saying a word. It has become a common customer service communication channel in a variety of industries. From the customer’s perspective, it is a pressure‐free way to get answers to simple questions.

With more people accessing the Internet via hand-held devices, website developers are being challenged to create online environments that are compatible with a wide range of hardware, from cell phones to widescreen monitors. A recent Business Week technology article highlights the problems this may cause for companies like Google. The search engine giant and other firms that generate revenue from ads must address the fact that there is less ad inventory available on the small screens of hand-held devices.

In the midst of this quarter's write-downs, layoffs and earnings disappointments, wealth management clearly remains a bright, profitable star on Wall Street -- in Merrill Lynch, for instance, wealth management was most strongly profitable unit this quarter and financial advisors have been promised they will be spared from the upcoming layoffs. In an interesting trend, more wealth management dollars are moving into socially aware investing. According to the Social Investment Forum, socially responsible investing assets in the U.S surged 18% from 2005 to 2007, outpacing broader managed assets. Although this research focused on institutional investors, retail investors are following the same pattern, at least according to Bill Crager, president of Envestnet. He should know; his firm's platform for financial advisors, which is used by 400 broker/dealers, beta tested a socially aware investment vehicle with a handful of small investment firms and attracted $300 million in six months.

Aite Group recently asked a group of 505 U.S. baby boomers (251 pre-retirees and 254 recently retired) how they like to receive brokerage financial statements and prospectuses and to what extent they would like these to be paperless. Surprisingly, they're not as willing to forego paper as one might expect in these carbon-footprint-conscious times.

Amidst all of the buzz regarding the progress of NAVA’s Straight Through Processing initiative, advisor education is a topic that has come up quite frequently over the first two days of the 2008 Nava Marketing Conference. Indeed, a panel of distributors commented that one of the most important things annuity providers can do is to provide product education to their advisors. Given the importance of advisor education, it is surprising, then, how few firms use their advisor websites in this capacity.

If you ask investment advisors for a list of their most important investment tenets, odds are that they’ll include a statement along the lines of "Maintain a disciplined investment approach." Translation: don’t get spooked by market volatility.

In the past few weeks, State Street, Legg Mason, TD Asset Management, Bear Stearns and other asset management firms have introduced new 130/30 funds; all told, about 140 of these funds exist today. But Colin Bugler, director of prime brokerage for RBC Capital Markets, says these asset managers will face intense competition and will need to ramp up their technology infrastructure, particularly those who are new to the business of shorting stock. (To short a stock is to borrow shares from a broker and sell them to another buyer, with the obligation to buy the shares back at some point in time and return them to the lender. It's a bet that a stock's value will drop, enabling you to buy it back at a cheaper price, while having already pocketed the profit from the original sale at the higher price.)

One of my favorite movies is A Christmas Story featuring Peter Billingsly. It takes place in the early 40s and highlights the main character's trials and tribulations leading up to Christmas. One of the sub-plots is his desire to get a decoder ring for his favorite radio show, Little Orphan Annie. He finally gets it and it’s a little brass wheel that has 26 numbers corresponding to the letters of the alphabet. He's disappointed when he decodes his first message, which turns out to be an ad: "Remember to drink your Ovaltine." We were reminded of this when we received our new Passcard from Interactive Brokers.

When we read this morning that JPMorgan is opening a hedge fund services office in Luxembourg, we thought, Luxembourg? Isn't that a postage-stamp sized country with a handful of people living in it? (Lacking confidence in our geographic knowledge, we checked wikipedia and found that indeed, Luxembourg is "a small landlocked country in western Europe, bordered by Belgium, France, and Germany. Luxembourg has a population of under half a million people in an area of approximately 2,586 square kilometres (999 sq mi.)" How can a place with less than a half-million people have so many hedge funds that it needs a new hedge fund administrator? We envisioned an exclusive playground for the super-rich being fawned upon by teams of specialized hedge funds.

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.

There was an interesting article in yesterday’s Wall Street Journal (login required):

[SEC Chairman Christopher] Cox also is expected to put up for final vote Wednesday a proposed rule that would enable companies to create online shareholder forums where investors and management could exchange thoughts, establishing a kind of chat room to improve communication. Opposing that model is the AARP, the lobby group for adults 50 and older, which said its studies show that doing so would result in fewer of its members participating in shareholder elections.

A couple of thoughts spring to mind here:

A couple of days ago, I posted about how Fidelity reps made some hay from E*TRADE's troubles. Now, another firm has sent an interesting marketing email to clients.

Everyday it seems another financial firm comes forward to admit that it’s facing billions in write-downs due to CDO and sub-prime mortgage exposure. Bank of America, Bear Stearns, Citibank, HSBC, Merrill Lynch, Wachovia and Washington Mutual have all announced huge losses in the past few weeks. The latest addition to this list is E*TRADE. On Friday, E*TRADE disclosed that the losses it anticipated on its mortgage-related assets could be bigger than expected and that the SEC was investigating the firm’s loan and security portfolio. The inevitable analyst downgrades followed, led by Citi’s Prashant Bhatia who said there was a 15% chance the firm could go bankrupt.

To combine big-city investment management services with small-town personal service to its affluent clients, Coconut Grove Bank, Miami, announced this week that it has deployed Sungard's WealthStation and Overlay platforms. WealthStation lets investment advisers provide financial planning and investment products through one system, and Overlay provides access to well-known money managers at large institutions. Together, they "help an organization like ours compete with the Citibanks of the world, with a response time that's much quicker than you find in the large organizations," says Barry Givner, executive vice president and senior trust officer for Coconut Grove Bank's Trust and Wealth Management Department.

Good but busy times lie ahead for the wealth management industry – it should grow 30% annually over the next few years according to a PriceWaterhouseCoopers report – and the increasing workload is driving wealth and asset managers to streamline their tasks. One time-consuming and difficult chore is preparing investment proposals, says Bob Skea, chief operating officer of Northstar. "The primary reason it's hard is that the work is manual – they're using PowerPoint, they have to find all the client's fundamental information, they have to collect risk profile data, they need to combine all that with an asset allocation modeling tool, which is often in a different system," he says. "Information about different products — fixed income, SMAs, mutual funds and so forth — all come from different sources." And once all the right information is gathered and a proposal is drafted, it may be noncompliant, because there's no record of how the proposal was generated and where the information came from.

Anyone who even remotely follows technology and the Internet has no doubt heard of Web 2.0. While there does not seem to be one accepted, all-encompassing definition, there are a number of features associated with it: AJAX enabled web pages, reviews, blogs, etc. Although it may be hard to define, as Potter Stewart might have said, "I know it when I see it."

Wall Street firms are ready to spend on new wealth management technology, according to a report released today by Datamonitor that predicts spending on wealth management IT in North America, Europe and Asia-Pacific will reach $28.5 billion by 2012.

Every few years, we review commissions at the firms that we monitor. Given the recent elimination of the "Merrill Rule", it seemed an opportune time to revisit this issue since the default account that clients are being switched into (unless they specify otherwise) are standard commissionable brokerage account.

As we discussed in our weekly e-Monitor Update, Fidelity this week updated its Live Chat tool with a new design and format. While the changes were strictly aesthetic, the tool clearly remains an important factor in connecting clients and customer service representatives.

Bank of America recently launched a couple of security initiatives for both its banking and brokerage clients. To us, one of them seems pretty innovative, the other a potential nuisance.

Welcome back! The summer drew to a close with speculation about a possible merger between E*Trade and TD Ameritrade. While there has been a lot of talk since about the strategic ramifications for both firms, I began to wonder what the impact of a united firm would have on the customer.

We recently completed a review of the call centers at leading brokerage firms for our Broker Monitor report and, overall, things have improved in the past three years since the last time we looked at this issue.

Welcome. My name is Mike Ellison and I am the EVP at Corporate Insight. We’re a firm that looks at the retail experience at a number of brokerage, mutual fund, and banking firms. From time to time, I’m going to be blogging on subjects related to wealth management. Much of what I will be talking about will come from our experiences in maintaining live accounts at the firms we follow in our research. When we uncover something I feel would generate some lively discussion, I’ll post it and hopefully you’ll chime in with your opinions.

To open our discussion, we recently received an email from E*TRADE on identifying and avoiding fraud that I think should generate some dialog.

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