One year ago FolioFN Inc. was a start-up company offering what it said was a better mousetrap an easier way for retail investors to build customized securities portfolios online.
Now, with well-financed companies like E-Trade Group Inc. and Fidelity Investments announcing plans to build similar products, and Charles Schwab Corp. currently testing one in the Washington area, FolioFN has introduced Folio Manager, a product to help financial advisers set up and manage customized portfolios for many clients simultaneously.
The Merrifield, Va., company is also making a push to sell Folio Manager, which was introduced last week, through intermediaries. Steven Cohen, vice president of marketing at FolioFN, said that by letting advisers make changes in all their clients portfolios simultaneously rather than account by account, the product helps advisers handle many more individually managed accounts than they could otherwise.
For example, an adviser who wants to change an investment used in several client portfolios can do so with a single click, he said. Advisers who use Folio Advisor, a product the company introduced in January, can only change one clients portfolio at a time.
Folio Manager also lets portfolio managers create model portfolios, which advisers can then use for their own clients.
The portfolio manager and the individual adviser must be affiliated with the same organization to use Folio Manager. But by midsummer FolioFN plans to launch a more sophisticated version that will let third-party advisers set up individual Web sites with model portfolios for individual advisers to use.
The company is also planning to make a full court press in marketing Folio Manager through banks, Mr. Cohen said.
Analysts say courting intermediaries is a solid strategy for the company, because they are the fastest-growing distribution channel for investment products, far outpacing direct sales in recent years.
Jamie Punishill, an analyst at Forrester Research in Boston, said FolioFNs whole success is predicated on the intermediary market.
Robert Heggarty, an analyst with TowerGroup, a consulting firm in Needham, Mass., agreed, said the intermediary market will give FolioFN its best shot at competing with Schwab, Fidelity, and E-Trade, which announced Monday that it would start selling its stock basket products through intermediaries.
FolioFN realized the real potential for growth is in the adviser industry, he said.
While the company is not nearly as big as its rivals Mr. Heggarty estimates it has about $700 million of assets the fact that its products are more advanced should help it get a foothold in the intermediary market, he said.
Mr. Punishill said FolioFN is also helped by the fact that it has no outdated legacy computer system to overcome which can make rolling out such a product extremely expensive.
Dan Burke, an analyst with Gomez Advisers in Boston, said FolioFNs technological edge could help it sign deals to let other financial institutions license its technology to provide their own stock basket investment capability.
A spokeswoman for FolioFN said it is considering licensing deals, but would not elaborate further.
A Fidelity spokesman said that the Boston mutual fund company plans to release a stock basket product next month, but for the time being it will only be sold directly to retail investors.
Mr. Burke said that, technology aside, one of FolioFNs best selling points to brokers and advisers is the fact that unlike with mutual funds the companys products give investors and advisers control over when stocks are sold, and thus more control over capital gains taxes.
But the company may have difficulty finding space on brokerages shelves, which are already crowded with products like mutual funds and variable annuities, Mr. Burke said. Its going to be difficult to gain traction.
Mr. Cohen said FolioFN will not compete directly with the mutual fund industry. He dismissed the perception that were here to put the fund industry out of business.
Rather, the company will sell its products to advisers and brokers as flexible options for investors who want something other than traditional investment products, and it will allow advisers to use the products however they choose, he said.
Also, the company has talked to some mutual fund companies about the possibility of joint partnerships, Mr. Cohen said. However, he declined to say when or even if any such deal would be announced.
Shaw Lively, an analyst with the Boston-based technology consulting and research firm IDC, said that no matter how good its products are, FolioFN will have a tough time carving a niche for itself.
Most small firms that have innovative products have lost over the long term to companies with more clout that develop similar products, he said. Its hard for a small company to get a credible piece of the market.
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