The Pennsylvania mutual fund giant Vanguard Group plans to start offering free investment advice online this year to participants in its employer-sponsored retirement plans and to its individual investor clients.
The service, made possible through a partnership with Financial Engines Inc., of Palo Alto, Calif., will help Vanguard carve a niche for itself, said Financial Engines president and chief executive officer Jeffrey Maggioncalda.
"Vanguard is telling its competitors and customers that investment advice is a fundamental part of retirement services," Mr. Maggioncalda said in an interview.
Vanguard chairman/CEO John J. Brennan said in a release last week announcing the alliance that "a top priority" at the Valley Forge company "is to utilize the Internet to provide personalized and individualized advice and education and to become the primary financial management and education source for our clients. This initiative does that."
Financial Engines charges for use of its allocation models and the advice it offers through 20 banks, brokerages, and insurance companies, including CitiStreet, Northern Trust, Merrill Lynch & Co., Principal Financial Group, Scudder Kemper Investments, T. Rowe Price, Charles Schwab, FleetBoston Financial Corp., Metropolitan Life Insurance Co., and KeyCorp.
The company uses proprietary models to size up customers' portfolios and allocations.
The software weighs such elements as inflation, interest rates, and market returns to arrive at a calculation of how a portfolio can be expected to perform in five years and by retirement. Performance for other time frames can be calculated upon request.
When these assessments project that customers will probably fall short of their investment goals, the system recommends mutual funds and stocks that might help.
Afterward, Financial Engines sends monthly e-mail alerts that tell customers whether their outlook is "sunny" or "cloudy" - meaning it is performing well or less than adequately - and suggest remedies.
Vanguard plans to offer the service, which will assess the customer's total household portfolio, to employee-sponsored plan participants by the end of the second quarter and to individual retail investors by yearend.
Mr. Maggioncalda said his company is trying to increase its visibility among third parties and wants to work in several mediums.
"Right now our advice services are available on the Web for online customers, through a call center for midrange customers, and through a financial adviser for high-net-worth customers."
Analysts say these types of services and the Internet have limited appeal in this market.
Burton Greenwald, an analyst in Philadelphia, said high-net-worth investors are an especially hard sell for Web-delivered advice.
"You can say you want to offer this type of advice to everyone, but it doesn't mean everyone is going to listen," Mr. Greenwald said. "You have to
target your audience carefully."
