4 New Online Money Management Tools Worth a Try
They can do everything from provide you with a personal finance score to fix your retirement portfolio for free
I may have found some new ways to get you out of a personal finance funk.
This is the gnawing feeling many of us have that we're not managing our money well and are paying too much for 401(k)s, mutual funds, brokers and financial planners.
But four nascent websites and apps unveiled this week at the annual Finovate Fall 2013 conference in New York City could offer what you need to grow your wealth, reach your financial goals and save some money. I’d even call one of them fun. (I wrote about four others after last year’s Finovate: Credit Sesame, Tuition.io, PayTap and My Virtual StrongBox; I’m glad to say these are all still around and expanding.)
My Gripes With Personal Financial Management Tools
Bear in mind that I approach this subject as someone who hasn’t been a huge fan of these electronic helpers because, as I wrote in “Personal Financial Management Tools Flunk,” many require a lot of effort and offer little payoff.
What’s more, with so many of these products vying for your attention, it’s easy to be overwhelmed by all the alternatives.
(MORE: The Key to Making Smart Money Decisions)
Says Ron Shevlin, a senior analyst at the financial services consultancy, the Aite Group: “I found six screens for apps to manage your financial life just beginning with the letter ‘A’ in the app store.”
Here’s my quick guide to four promising sites and apps from Finovate, along with my caveats:
Day-to-Day Money Management
I was intrigued by two free sites for consumers: FlexScore and Guide Financial.
(Two other helpful new tools, Yodlee’s Tandem and MoneyDesktop’s Guide Me, will be offered by financial institutions to their customers. Tandem is a collaborative money-management program that could be useful for people with financial responsibilities for their adult kids and their elderly parents. Guide Me provides a snazzy visual representation of your financial goals in bubbles whose size is based on how much money they’ll require.)
FlexScore, my Finovite favorite, is fun to use and free. The site calculates a personal finance score for you based on how well you’re managing your money (it takes about 15 minutes for you to enter your information). Then it shows you how to raise the number, with the goal of reaching a perfect 1,000.
Lower your mortgage rate through refinancing and you might raise your FlexScore 24 points; update your life insurance and it could go up 16 points.
Your score will drop if you make a dumb money move, such as taking the money you save from refinancing and putting it all into one stock. “You’ll get dinged for a lack of diversification,” says Jeff Burrow, FlexScore’s president and co-founder, who is also a financial adviser.
FlexScore gets paid if you use the financial institutions on its site, but you’re not obligated to use any of them.
“I like FlexScore a lot,” says Doug Miller, a senior analyst for banking and cards at Corporate Insight, a financial services analytics firm. “You’re not trying to score points for points’ sake. If you improve your score, you can see tangible results.”
Two caveats: 1. FlexScore doesn’t offer a human adviser for assistance in reaching your goals, and 2. If you’re married or have a partner, you’ll each need to get a personal FlexScore because the site doesn’t offer a household score.
Guide Financial aims to solve the problem with many electronic personal finance tools. They tell you where your money is going but not what to do about it.
When this free site opens to the public in the next few months, you’ll get step-by-step advice on such things as how to save money refinancing your mortgage, find the highest-yielding savings account and choose a retirement plan. Over time, says co-founder Scott Burns, the site will expand to 25 categories, including ways to save money financing a car or college.
One of Guide Financial’s coolest features, I think, is its search functionality. It lets you quickly see whether you’ve shelled out more lately in one category — say, dining out — than in previous months, so you can then curb this type of spending accordingly.
You can sign up now to get on Guide Financial’s waiting list and become a user once the site’s live.
One caveat: Guide Financial won’t provide you with investment advice.
DIY Online Investing
Future Advisor and Financial Guard are two new entries in the hot category known as online wealth management or algorithm-based investment advice. Others include Betterment (Slate.com called it "the easiest investment site you'll ever use"), Wealthfront (formerly known as KaChing), Personal Capital, JemStep, Quovo and SigFig. Often backed by serious Silicon Valley money, these services are generally designed to help people invest for retirement.
(MORE: How Women Who’ve Never Invested Can Get Started)
Future Advisor CEO Bo Lu calls them “the next iteration of low-cost brokerages.” In his new “Next-Generation Investing" report, Corporate Insight senior research associate Grant Easterbrook says they could “upend the traditional investment advice model.”
Here’s how these automated investment advisers work:
First, you answer a quickie questionnaire with a few simple questions such as your age, when you expect to retire, your risk tolerance, and the names of your funds and ETFs as well as how much money you have in each. Then, the site puts an electronic microscope to your holdings and tells you what to buy, sell or hold. It also periodically advises you to rebalance your portfolio, so it’ll return to your recommended asset allocation after changes in the stock or bond markets.
The intended result? A diversified portfolio with the right asset allocation for you and without high-cost or poor-performing funds and ETFs.
Future Advisor, which recommends low-cost index funds and commission-free ETFs, gives you its asset allocation analysis and investment picks for free.
“We take your existing investments and make the minimum set of adjustments to get to the portfolio you should have,” says Lu.
Sign up for its new Premium Account ($9 a month per household if the portfolio is under $50,000; $19 a month if it’s over) and Future Advisor will make the trades for you and automatically rebalance your investments quarterly. The $19-a-month fee also includes automatic tax-loss harvesting; Future Advisor will sell your losses to offset your taxable capital gains.
Financial Guard ($15.95 per month or $149.95 per year) grades your funds and ETFs on an A to F scale (based on performance and fees) and then tells you which ones to keep and what to buy so your portfolio will get an A.
If you prefer actively managed funds whose captains select specific stocks or bonds to buy, Financial Guard will find those for you. It will also send quarterly recommendations for rebalancing your portfolio.
Currently, you need to place fund and ETF orders elsewhere. But Financial Guard is in the process of creating a “do it for me” button, says Kevin Pohmer, the site’s CEO and founder. It should be available by January 2014.
Three caveats: My biggest concern about these types of sites is that they’re not — to use a financial planning buzzword — holistic. That is, the algorithm-based investment advisers don’t know anything about your financial life beyond what you enter into the brief questionnaire. And the services generally don’t offer access to a living, breathing financial planner.
Other analysts share my concern. “Most algorithm-based advice services do not collect a significant amount of information from users about their financial situations and goals. This leads us to question the validity of the advice being provided,” Easterbrook wrote in his report. “While there’s value in receiving investment recommendations, it would be better if the analysis were based on a truly comprehensive understanding of the client’s financial situation.”
Easterbrook thinks investors who’d benefit most from algorithm-based investment advisers are those with complex portfolios spread across several accounts and those who want a second opinion on what their financial adviser is doing. That seems about right to me.
Lu concedes that wealthy folks or those with “extremely complex” financial situations will always need human advice. But, Lu says, most Future Advisor clients have never had financial advisers, so his service offers them guidance for the first time. “Is automated, diligent, tax-aware service better than average Americans kinda, sorta doing it themselves? You’d be hard-pressed to say anything but yes,” says Lu.
Financial Guard’s Pohmer, who told me his firm wants to be “the Wal-Mart of investment advice” for the middle class, agrees. “Yes, there’s a role to provide customized personalized solutions for very sophisticated investors,” he says.
I also think the sites’ quarterly rebalancing default is off-base. As Morningstar’s director of personal finance, Christine Benz, has said, investors should rebalance only when their stakes in stocks, bonds or cash are five or 10 percentage points out of whack with their target ranges. That’s unlikely to happen each quarter.
My last caution is that I foresee a shakeout in the computerized wealth-management field. It has already begun. Bloomberg’s pilot product, BloombergBlack, shut down in July, and LPL Financial Holdings announced it plans to close Nestwise.
Hire a Person for Personalized Advice
So I’d say if sites like these appeal to you, give one a try. But get yourself a human financial planner too, so someone is working with you on the big picture and money issues beyond investing.
(MORE: How to Find a Financial Adviser Who’s Right for You)
The Financial Planning Association site can help you find advisers nearby. If you’re not a high-roller, consider making an appointment with a pro at Garrett Planning Network or LearnVest, two firms geared to middle-income Americans who typically charge flat-rate fees rather than a percentage of your assets.
Computers are wonderful, but they can't always do what for you what a person can.