Tuesday Tips – Five Ways Brokerages Can Improve Online Asset Allocation Tools

by on Jul 09, 2013

Tuesday Tips from Corporate InsightTuesday Tips helps financial services firms improve a key aspect of their online user experience. Recommendations are taken directly from our Monitor Reports and Consulting Services research, which cover banking, brokerage, credit cards, asset management, retirement, annuities and insurance

For the average investor, portfolio diversification is necessary to protect wealth from market swings. An essential part of portfolio management is allocating assets amongst different investments that carry different levels of risk. To help clients handle the task, online brokerages provide asset allocation tools that help clients determine a target asset allocation model, and then compare their current holdings to the target.

The following five tips are taken from our recent E-Monitor report, Asset Allocation Tools: Helping Clients Diversify Their Portfolios, and focus on ways brokerages can improve the asset allocation and portfolio allocation tools they offer prospects and clients online:

#1 Offer an Online Investor Profile Questionnaire and Target Allocation Model – Providing a questionnaire and pre-defined target allocation models gives clients the flexibility to choose their own target portfolios or determine an appropriate portfolio allocation. A basic questionnaire provides a simple format for identifying and quantifying a client’s risk aversion, investing objective and time horizon, goals and experience. The questionnaire yields a target asset allocation model to match those needs. As an added benefit, firms should provide clients with the opportunity to select from pre-defined allocation models or create a custom mode. Vanguard’s Portfolio Watch includes all three options – an Investor Questionnaire, pre-established model portfolios and the option to create a custom mix.

 

Vanguard Model Portfolio and Custom Asset Mix Option
Vanguard Model Portfolio and Custom Asset Mix Option
#2 Analyze Internal and External Account Holdings – Incorporating actual account holdings is the best way for clients to assess their portfolio allocation. We highly recommend that firms provide asset allocation tools that include clients’ accounts at the firm and outside institutions. As a secondary option, firms should at least allow clients to manually input holdings information. Account aggregation allows for a complete asset allocation analysis and adds a lot of value to an asset allocation tool. Fidelity automatically includes accounts added through its FullView aggregation service in the Portfolio Review asset allocation tool, so clients only have to enter account information one time. The firm also lets clients manually add accounts within Portfolio Review.

#3 Recommend Helpful, Actionable Investments – The most helpful asset allocation tools prescribe specific investments and strategies relative to the client’s analysis. While juxtaposing a client’s target portfolio against their existing portfolio is helpful for identifying investment imbalances and portfolio weaknesses, the most successful asset allocation tools also name specific, actionable investments to fulfill those goals. For example, ShareBuilder’s PortfolioBuilder utility recommends specific ETF investments by name in order to satisfy client investment preferences and portfolio balances.

 

Specific Investment Recommendations from ShareBuilder’s PortfolioBuilder
Specific Investment Recommendations from ShareBuilder’s PortfolioBuilder
#4 Allow Clients to Trade Directly from the Tool – Going along with our previous recommendation, allow clients to place a trade directly from the tool. Once a suggested portfolio is displayed, provide a link that allows clients to purchase it without having to navigate away from the tool. One of the most compressive tools, TD Ameritrade’s Portfolio Planner, allows clients to purchase a basket of securities or invest in a portion of the portfolio.

 

TD Ameritrade’s Asset Allocation Tool Trade Features
TD Ameritrade’s Asset Allocation Tool Trade Features
#5 Offer Email Alerts – Email alerts can be an added value to alert clients of any portfolio imbalances or as a reminder to update a portfolio as investment needs change. Consider allowing clients to receive email alerts whenever their portfolio’s asset allocation diverges from that of a target profile by a pre-determined amount.  Also consider allowing clients to receive periodic email updates about the status of their asset allocation and reminding them that it may be time to use the tool again to check if their allocation is still in line. Charles Schwab offers a helpful email alert, allowing clients to send an email reminder every 6-, 9- or 12 months to revalue a portfolio.