There Are Pitfalls in Path to Online Financial Advice
Using the Internet to get advice on managing your personal finances can be convenient, cost-effective--and confusing.
That’s what Bruce Glasscock, a 45-year-old Modesto pharmacist, discovered when he signed up for three Web-based services that offer financial planning advice: Morningstar, Financial Engines and the Motley Fool.
Glasscock, who wanted guidance on picking mutual funds for his retirement, was able to do his research in the comfort of his own home for a fraction of what a financial planner would have charged. But what he didn’t expect was that each of the services would give him different--and often conflicting--advice.
One site touts buying individual company stocks; another says mutual funds are the best way to go.
One recommends Janus funds--another does not.
An investment calculator on one site says he’ll be rich at retirement, while another predicts he’ll just scrape by.
Glasscock says he’s confused to the point of paralysis.
“Which advice service do you go with?” asks Glasscock, a married father of two. “We don’t have the kind of time to make a career out of this. I just want to know if I am doing the right thing.”
He isn’t alone. Faced with an explosion of financial information on the Web, consumers must be prepared to do some homework to make sure they’re getting accurate advice that’s suited to their needs.
Here are some tips for finding your way through the online maze:
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Narrow the Field
Lynn O’Shaughnessy, author of “The Investing Bible” (Hungry Minds Press, 2001), said investors should limit themselves to well-known sites sponsored by reputable companies. All three sites Glasscock uses, as well as sites sponsored by big mutual fund companies such as Vanguard, Fidelity and T. Rowe Price, are good options. She also likes sites sponsored by journalistic organizations such as CNBC, Smart Money and the Los Angeles Times.
Consumers should avoid sites sponsored by unfamiliar companies, and particularly those that tout individual stocks that are “guaranteed” to post huge profits, she said.
“If you stray too far off the path, you can get snagged by sites that tout particular stocks only because some promoter has paid them to do so,” O’Shaughnessy said. “Why wander into the jungle? You never know what’s going to bite you.”
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Determine Your Needs
Some sites offer a wide range of financial advice, from how to buy a house or car to strategies for retirement savings. Others concentrate solely on investments.
If you need life advice--such as whether and how much to save for college expenses--free sites probably will provide it. These sites, sponsored by mutual fund companies, newspapers and magazines, do a great job of providing valuable consumer education materials and work sheets on a wide array of personal finance topics. They can help you figure out how much to save and give some direction on the best types of savings vehicles.
However, if you’re looking for specific investment advice--the best funds to choose in your 401(k) retirement plan, for instance--you might need to pay a fee to get it. Although detailed investment analysis sites, such as Financial Engines and Morningstar.com, offer a wide array of financial information for free, only members have access to the portfolio analyzers that can pick funds for you.
Morningstar charges $7.95 for a three-month subscription to Clear Future, its consumer advice service. A one-year membership works out to about $32. However, those who want more--including analyst reports and enhanced portfolio tools--might want to buy Morningstar’s premium membership service for $11.95 a month, which is what Glasscock does.
Financial Engines charges about $150 annually for advice on tax-qualified savings accounts such as 401(k) plans and $300 a year for advice on investments in taxable accounts.
San Francisco-based MPower offers a retail retirement plan analyzer through MSN Money for $20 annually, MPower Executive Vice President Neal Ringquist said.
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Test the Advice
Consumers who subscribe to more than one service may get very different advice from each service. Some differences are to be expected, financial advisors say, because there are many routes to financial security, and reasonable advisors often disagree.
But some of the conflicts can be traced to differences in the online advice programs, said Jeff Maggioncalda, president and chief executive of Financial Engines. Consumers looking for detailed financial advice should spend a little time testing the program to see what it’s providing, he said.
For instance, financial professionals know that the risk of investing in a single stock is substantially greater than investing in a diversified mutual fund. But many online advice services act as though there is no difference between the two investments.
To see whether your online service accounts for that risk, Maggioncalda suggests this test: Plug in a sample portfolio of $10,000 in a single blue-chip stock, such as General Motors, and click to get the program’s projection of value and investment volatility.
Do the same calculation using an index mutual fund, such as Vanguard Index 500. If the projection looks the same, your service is using the historic returns of the Standard & Poor’s 500 index as a proxy for each stock within that index, which is misleading, he said.
Advisory services also can come up short when comparing mutual funds, ignoring differences in management fees, investment strategies and turnover rates.
To judge how well a site evaluates mutual funds, pick several funds that invest in growth stocks and that have different fees and then plug them into the program--one-by-one--to see whether the program distinguishes among them.
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Times staff writer Kathy M. Kristof, author of “Investing 101” (Bloomberg Press, 2000), welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For past Personal Finance columns visit The Times’ Web site at www.latimes.com/perfin.
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Online Help With Finances
Here’s a sampling of Internet sites that offer financial planning resources:
* www.financialengines.com: Sophisticated advisory site offering free and for-pay services.
* www.morningstar.com: An in-depth service operated by mutual fund tracker Morningstar Inc.
* www.kiplinger.com: Affiliated with Kiplinger’s magazine; heavy emphasis on personal finance.
* www.smartmoney.com: A magazine site; newsy, with emphasis on stock investing.
* www.fool.com: The Motley Fool site, known for its irreverent, down-to-earth approach.
* cbs.marketwatch.com: A newsy site that offers lots of research and planning tools.
* moneycentral.msn.com: Microsoft’s investment site, presented in conjunction with financial network CNBC.
* Several Web sites operated by mutual fund companies offer retirement planning and investment research tools, including www.fidelity.com, www.vanguard.com and www.troweprice.com.
* Some useful sites are operated by newspapers, including the Wall Street Journal (www.wsj.com), the New York Times (www.nyt.com) and the Los Angeles Times (www.latimes.com).
Source: Times research
