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A contributed piece by Dan Burke, Gomez Inc.
A contributed piece by Dan Burke, Gomez Inc.
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How Alerts Can Support The Advisor's Bottom Line

During preparation of our Full-Service Scorecard and Gomez research of clients in an advisory relationship who use the online channel, it became apparent to us that alerts are simply not effective.

During preparation of our Full-Service Scorecard and Gomez research of clients in an advisory relationship who use the online channel, it became apparent to us that alerts are simply not effective. Case in point, Salomon Smith Barney recently withdrew alerts completely from its online offering.

The issue is not alerts but rather the type of information that is being delivered via alerts.

Across the self-directed and advisory marketplaces, alerts remain entrenched in the transactional world. As such, alerts can be set to trigger when a security hits a certain price, a volume threshold is reached, or when research or an earnings announcement is released. All of these alerts have in common is a singular focus on one security and therefore have minimal impact on the entire portfolio. This situation is exacerbated during market downdrafts as investors remain on the sidelines. Existing alerts fall victim to the lack of trading - and, more importantly, their utility is questioned by firms that have invested in their development.

Planning Tools Drive Transactions
Our earlier report, Advisory Clients and the Internet, revealed that investment selection and financial planning tools have a direct impact on the offline transactional frequency of clients. At the same time, those clients who used alerts reflected no change in offline transactional activity. In short, alerts were not a stimulus for changes made to a portfolio, whereas other planning and selection tools served as a catalyst for activity and increased dialogue between advisors and clients.

The response, we are finally seeing the emergence of alerts that address portfolio planning -- not just individual securities -- that are helping investors answer the simple question, "How am I doing?" These alerts can serve as an investor bridge from planning tools to stimulate offline transactions designed to keep a portfolio in balance. A good example of this is Wells Trade's, which notifies clients when their portfolio allocation falls out of balance. Alerts can be set for weekly, monthly or quarterly deployment.

The implication for firms is to use alerts in concert with planning tools to provide a one-two punch that keeps clients and advisors in lockstep. Otherwise, existing alerts are going to be thrown out with the bull market bath water -- which would be a major mistake.

Think In Terms Of Advisor Interaction
Full-service brokerage firms therefore must start small and build easy-to-use and straightforward planning tools rather than complex multi-goal asset allocation and portfolio analysis tools that serve as a baseline for advisor consultations. The inclusion of alerts will tie the tool back to the user and prompt them to re-think their portfolio with the help of their advisor when asset allocation variances merit the discussion.

At the same time, it is the advisor's expertise and experience that extends the tool's capabilities, not the tool alone that is responsible for allocation decisions.

Additionally, the expense associated with alerts should be justified in the building of stronger and deeper client relationships that eventually lead to transactions, not on the delivery of market information that most likely will not be acted upon.

Dan Burke is Vice President of Research at Gomez, Inc., a Waltham, MA Internet Quality Measurement firm. Click here for an executive summary of Advisory Clients and the Internet. Please send any comments or feedback to [email protected]

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