A new competitor called Covestor has quietly rolled onto Wall Street and is hoping to dine on the lunches of mutual fund and hedge fund managers. "We want to de-institutionalize money management and funds management," says Perry Blacher, director of marketing and co-founder of Covestor. "We're taking on the guys in the big corner offices with wood paneling who rely on people's laziness," he says.Covestor is like other social networking investment sites, such as Cake Financial, in that it aggregates information about members' investment activity in their various brokerage accounts (in this case, using Yodlee) and lets them share their performance metrics with with others. But this site goes beyond being a way to pick up stock tips or show off one's trading prowess -- it will actually pay investors who perform well.
The way it works is, if a member likes another participant's investment goals and practices, he or she can track that person's portfolio, receiving alerts by email or on the site every time that person buys or sells something (other sites like Cake offer this too). If the member still likes what he sees, he will eventually be able to put money into a managed account to be invested exactly the way the high-performing member (called a "leader") does. Then the leader will receive a fixed data fee based on how many members are following his investments. This is all legal, Blacher says, because Covestor will be a registered investment advisor and members will pay it (not other members) for the advice. Investment advisors are welcome to join the network and use it to broaden their client base, he says.
At the moment, Covestor is a closed network that manages more than $100 million in assets invested in more than 3,000 equities. Within the next few months, Covestor will be open to the public.