VPNs and Connections To the Internet |
When Sovereign Wealth Management, a $100 million investment advisor firm based in Memphis, Tennessee, decided to open an office in nearby Nashville, it faced a host of auxiliary costs it had not considered in its original expansion plans.
"The first layer of costs included additional software licenses required for the new office," said Fleet Abston, executive vice president of the firm. "And then there were issues with data management. A client's information would have to be input in both the Nashville and Memphis offices, requiring additional support staff and constant updating. It became obvious that the firm would need to link the two offices' computer networks to ensure that records at both sites accurately reflected client holdings and other critical information."
Sovereign's solution was a virtual private network, or VPN. The setup allowed the firm's satellite office to log into Memphis's computer systems. "We are using the Web to get a private, point-to-point linkup with the Nashville staff, creating enormous efficiency," says Abston. "The total cost of the setup, about $250 per month, has allowed us to expand our assets under management without additional back-office personnel."
The company's VPN has also allowed Sovereign to switch from two single-user software licenses, which currently cost the firm $3,500 per year, to a single multi-user license, which only costs $1,000 per annum.
Virtual Private Networks (VPNs) allow users in remote locations to log into their home office computers via a private, encrypted 'tunnel' connection over the Internet. From the user's perspective, the VPN is a point-to-point connection between the user's computer and the corporate server. Depending on the number of users, the cost of VPN service can range from $200-$500 per month.
VPNs have enjoyed increasing popularity, especially among frequent business travelers and field salespeople. For more information on VPNs, check out www.bluestar.net or the VPN Insider Newsletter at www.vpninsider.com. In addition, Microsoft has added VPN technology to its Windows 2000 operating system.
One thing to beware if you are considering a VPN is that if you have Macintosh computers in your office, they will likely not be supported by VPN technology. Jim Marcucci, at PC Specialists in Bridgeport, Connecticut, says that most systems will not allow a mix of PCs and Macs on the same VPN; there are a couple of software packages that will support Macs, but in general Macs and PCs don't mix. If you use PCs for your number-crunching and Macs for your presentation artwork, just be warned that it may not be that easy to have them share a network.
Internet Service Providers (ISPs) offer a multitude of ways to get connected to the World Wide Web. One of the most often used is DSL, or Digital Subscriber Line, which connects to the Internet via a pair of copper wires. The leading DSL providers include Northpoint Communications (www.northpointcom.com) and Covad (www.covad.com). Expect to pay $100-$300 per month for a DSL line.
Sovereign enjoyed additional savings when it switched from an Integrated Services Digital Network (ISDN) Internet connection to the more modern DSL connection. While ISDN is a widely available and faster alternative to dial-up modem services, such as those offered by America Online and many local telephone companies, DSL boasts several advantages-even over cable modem services, another popular alternative to an ISDN line. For example, DSL service is much faster-256 kilobits per second (kbps) versus 128 kbps for ISDN-and DSL is "scalable," which means that firms can increase their data transmission speeds if their Internet usage requirements increase.
Internet "power users," and those advisors that sponsor large Web sites, often prefer a T1 connection to a DSL line. Although T1 offers the fastest connection to the Web-full T1 access runs 1.544 megabits per second (Mbps), or roughly five times faster than DSL-many small-to-midsize firms shun T1 because of its cost and the need for ongoing management. Further, T1 lines can put quite a strain on a firm's technology budget. T1 installation can easily run $5,000, and monthly fees can hit $2,500. T1 is also a challenge to configure, usually requiring the services of a technician or dedicated Information Technology personnel to maintain. In contrast, DSL connection takes little more than plugging into a wall socket.
According to Abston, Sovereign's Internet access fees went from $500 per month with an ISDN line to less than $125 per month for DSL service, and its speed doubled. As an added benefit, the firm's Internet Service Provider (ISP) agreed to host Sovereign's Web site and supply 10 free e-mailboxes, which saved the firm another $350 per year.
As technology claims an increasingly large share of advisors' operating budgets, it may have seemed that the cost of doing business was going only one way-up. But there are ways to deploy your technological investments to save money on many of the operations you're currently performing. Free Web tools, sites with valuable information at modest prices, and imaginative uses of existing technology can save you not only money but time as well. Here are five ways other advisors have turned their technology budget into a profitable investment.
Low-cost or free market sector research
Determining what makes a given market index tick-which stocks are delivering the best returns, and which are lagging the crowd-is a crucial part of the portfolio construction process. Since most advisors benchmark their returns against one of several indices maintained by Standard and Poor's, Dow Jones, and other companies, it is vitally important to know the components of each index. "If you are trying to beat a bogey," says Louis Llanes, president of Blythe Lane Investment Management, a Denver-based advisor with $54 million in assets under management, "you have to know what that bogey is."
According to Llanes, S&P is the stingiest when it comes to sharing data. "Since the company makes money by licensing its name to index fund operators, it is not willing give away component information," says Llanes. As a result, its prices are high; an annual subscription to S&P's Index Alert product costs $22,660 for a multi-user license. "It's the best data in the world, but it comes at a premium price," he says.
Llanes bypasses this expense by using Standard and Poor's global Web site (www.spglobal.com/sectorscorecard.html). The site shows component weightings in each of the 10 S&P stock sectors-not quite as detailed as S&P's subscription product, but with enough information to construct a portfolio that closely mirrors the S&P 500 index. "It's pretty simple to use the data to replicate the returns of a given sector of the market when buying an index fund isn't feasible," says Llanes.
According to Llanes, the other leading equity indexers are much more willing to share the components of their indices. For example, information on all Dow Jones sector indices can be found on www.averages.dowjones.com/djia_cos.html. Holdings of exchange traded funds (ETFs), the popular investment vehicles that trade like stocks but invest in individual equities like traditional mutual funds, are shown on www.options.nasdaq-amex.com/indexshares/index_shares_over.stm.
Another useful site for planners is www.morningstar.com. For a $9.95 monthly charge, subscribers can access the holdings of any number of mutual funds, including the Vanguard 500 Index Fund, which virtually replicates the S&P 500 index.
Finally, Llanes is fond of sites that report on two of the largest movers of stock prices: earnings surprises and Wall Street analyst revisions. "The market responds so rapidly to earnings surprises-profit reports that either exceed Wall Street expectations or fall short of the mark-that having an accurate, up-to-date portal with company information is a real benefit." As a result, he regularly visits a site sponsored by Nasdaq, www.nasdaq.com/earnings/earnings_surprise.asp.
Equity research on the Web
Many independent financial advisors find the transition from large brokerage firm to independent advisor more difficult because of a lack of equity research. Procuring that information from firms such as Donaldson, Lufkin & Jenrette or Bear, Stearns can be an expensive proposition, often costing over $10,000 per year.
Top Research Sites for Advisors |
For component weightings in the 10 S&P stock sectors:
For information on Dow Jones sector indices:
To keep track of earnings surprises and analyst revisions:
For free conventional investment research:
For information on ETFs:
For stock split predictions:
For detailed information on stock ownership:
To find out the holdings of mutual funds:
For information on market sector trading strategy:
For information on high-tech stocks:
As connection speeds increase, so do monthly charges:
Dial-up-$21.95 (ex.: AOL)
There is no doubt that current research offerings on the Web are quite a bit different than reports generated by large Wall Street firms for distribution to their clients. For example, most of the investment research material on the Internet is delivered in a more concise, easily digested format, mainly due to the human dynamics of reading online. But even though traditional Wall Street research is more detailed than that available on such free Web sites as Multex Investor (www.multexinvestor.com), research firms have been more inclined to distribute sophisticated investment products on the Internet, such as earnings models and quantitatively based stock selection tools.
A few notable examples include those offered by Splittrader (www.splittrader.com), which attempts to predict which stocks are most likely to split (stock splits are often associated with outsized gains); Lionshares.com (www.lionshares.com), which gives detailed information on stock ownership; and a market sector trading strategy offered by Monocle Systems LLC (www.monoclesystems.com).
Still, there is no doubt that the Internet has created a more level playing field when it comes to research information. Internet technology has made it easier to share information, both between small firms and within large ones. What's more, the average retail investor has greater access to market research than ever before, putting considerable pressure on planners to stay up to speed with the ever-increasing sophistication of their client base.
As a result, investment professionals should strategically plan to look upstream to sites that offer the most complete view of a market or security, and depend less on sites populated by individual investors. Douglas Newland, a San Diego-based advisor with a wirehouse background, now does all of his research on the Internet. Among his favorite off-the-beaten-path Web sites are those sponsored by Upside Magazine (www.upside.com), CNET Networks (www.cnet.com), and ZD Inc. (www.zdnet.com), all of which concentrate on high-tech stocks-one of Newland's specialties.
Newland also contends that a treasure trove of financial information can be found on a number of company-sponsored Web sites. "The vast majority of Fortune 500 companies now maintain useful and easy-to-use portals," says Newland. "Many of the sites offer balance sheet and income statement data that can be downloaded to an Excel spreadsheet for more convenient analysis. As investors demand more from these companies in terms of disclosure, their sites will become even easier to use."
A cursory glance at Ford Motor Company's Web site (www.ford.com), for example, not only includes the most current balance sheet and income statement information, but also up-to-date information about the Firestone tire recall. And Cisco System's Web site (www.cisco.com) offers iQ Magazine, a company-generated newsletter filled with information about upcoming products.
Chip Hayes of Hayes Investment Management, another San Diego-based advisor, has found an interesting wrinkle; retail clients of Charles Schwab, the broker his firm uses as clearing agent, have more analytical tools available to them than Schwab's professional clientele. While Schwab's Analyst Center includes stock screening tools and investment research from Hambrecht and Quist and CS First Boston, says Hayes, "Schwab has undoubtedly focused more on the retail business than the advisor marketplace. They are pretty open in admitting this bias and are taking steps to enable professionals with the same tools as their individual clients, but so far the gap is still quite wide."
Large retail customers of the brokerage behemoth have access to the services offered to the advisor community, and in addition they can consult Morningstar mutual fund research, S&P Company Reports, earnings reports from First Call, and Vicker's Insider Trading Report. As a result, Hayes maintains an active retail account at Schwab in addition to his client accounts.
Enhanced performance reporting
Lamco Advisory Services, a $500 million advisor based in Orlando, Florida, uses the Internet to deliver account performance data to its larger clients. The firm recently invested about $5,000 to develop the technology, which included programming time and additional hardware.
The biggest savings to Lamco, according to Mark Lamoriello, executive vice president of the firm, are in printing, collating, binding, and other labor-intensive tasks. "When one considers that we send our 150 clients four statements per year, and each statement costs about $16.50 to deliver, we expect to break even on this project in six months," says Lamoriello. Of course, this assumes that all the firm's clients are Web-enabled, which he admits is not the case. But even in a worst-case scenario, he says, the break-even period is about one year.
Lamco may eventually offer streaming video conferencing in addition to quarterly performance reporting. "In the case of some of our larger clients, we are considering purchasing the required hardware for them. The cost to us would be relatively small, around $1,500 per PC, and it would allow a much higher level of customer service."