Tech Industry

Financial planning start-ups capture investors' interest

As online investing and banking enters the mainstream, a growing number of start-ups are vying to bring investment advice to a wider audience on the Web.

As online investing and banking enters the mainstream, a growing number of start-ups are vying to bring investment advice to a wider audience on the Web.

Companies such as Financial Engines, TeamVest and DirectAdvice use Internet-based technology to calculate an investment's financial possibilities and outcomes, offering people the kind of advice once reserved for the affluent and available only through advisers.

"These companies bring financial management services to the middle class," said Rob Sterling, an analyst at Jupiter Communications. "This seems to be a key part to the evolution of online finance."

The rise of such services comes at a critical time for Net brokers, who are scurrying to increase the size of the assets parked in their accounts. By adding financial planning services, the fees involved will help offset diminishing revenues from trading fees if the market turns bearish.

As online trading attracts less aggressive, less savvy investors, Net brokerages such as Charles Schwab and E*Trade are learning that they need to provide services that do a little hand holding.

"From a planning standpoint, (these services) provide greater motive for individual investors to keep the majority of their assets in one place," said Dan Burke, an analyst at Gomez Advisors.

Even traditional brokerages such as Merrill Lynch--which previously set their sights on wealthier clientele on the Web--are also backing companies that bring online financial advice and management tools to middle-class investors.

Financial Engines has won more than $120 million in funding from a list of blue chip firms, including Goldman Sachs, Merrill Lynch, Intel and Chase Manhattan. DirectAdvice has backing from Softbank, a major Internet investment firm that was an early investor in Yahoo and E*Trade.

The financial backing and partnerships are prompting a greater expansion in services.

This week, Financial Engines, a firm founded by a Nobel laureate Stanford professor, said it was expanding its advice services from just 401(k) accounts to include a wide variety of retirement vehicles such as IRAs and Keogh accounts. The services will be offered at nearly a half dozen online brokerages, including E*Trade, DLJ Direct, Merrill Lynch, Charles Schwab and Fidelity.

Last month, DirectAdvice teamed with E*Trade to provide financial planning services such as buying a home and saving for college tuition.

A report published last month by Forrester Research said that while one-third of financial services firms currently offer advice online, an additional 50 percent expect to do so by the end of 2000.

"If you're not a full service firm, it's important to provide some alternative to your customers to match up with what is available at full service firms," Sterling said.

The move into financial planning services runs counter to what the Securities and Exchange Commission has long tried to maintain--a separation between broker and adviser. It has feared that a dual role may foster conflict of interest. But with a booming number of people now trading online without the guidance of advisers, the SEC is reconsidering the relationship between brokers and advisers.