Friday, March 31, 2006
No salesman will call

DOUG STEINER

I learned about client anxiety the hard way back in 2000, when I was running an on-line brokerage and North American stock markets started to tank. In declining markets, too many investors really don't know what to do when they start losing the easy money they made on the way up. About 1% of our clients didn't accept any responsibility for their own trading, and many of them took out their anxieties on our call-centre staff. The scariest ones barged past our office security, phoned in bomb threats or, in one case, pulled me out of a trade show booth and spat in my face. That was the end of my direct trading advice.

Successful full-service brokers who advise retail clients have to be smart, sociable and Samsonite-luggage tough. Your adviser always deserves to wear some of your painhey, that's why they get paid, to coddle. But the truth is that advisers can't make good money with the smallest and least-educated investors, even if those clients are eager to learn.

So where can a little guy go? About nine years ago, during a trying period of dealing with these clients, I noticed an on-line voice piping up in chat rooms for small, do-it-yourself investors. He signed in as "Bylo Selhi," and he would answer almost any question. He also championed cheaper on-line investing, flat-fee commission pricing and true no-load mutual fund sales.

Selhi seemed to be on-line morning, afternoon and night. My colleagues and I estimated that he spent 30 to 50 hours a week helping little guys. There were a lot of crazies on investment websites in the late 1990sand there still are today. But Selhi really knew his stuff, and he often acted as an arbiter of facts and rumours. He even understood my firm's rounding-error issues with the accounting firm that crunched the numbers for our client accounts well enough to publicly talk someone out of ditching our services. In 1998, he launched his own website, http://www.bylo.org. Who was this person who would essentially do our work for us?

At first, we thought Selhi was just some rich technology-savvy kid looking for a job in the industry. Then, through the dot-com bust in 2000 and the investing wasteland of 2001 and 2002, Selhi continued to alert, calm, direct and motivate small investors on his site. The organization of information was accessible, and Selhi's own comments were direct, informative and sometimes cheeky, but always fair.

I spoke to Selhi on the phone recently for the first time. He's not eager to reveal much about his off-line identity, but he did tell me a bit about himself. He started his quest as a personal search for unbiased investment information. He says he was "semi-retired" from his own successful technology business. He'd also seen anxiety in other investors and felt it himself at times.

Selhi had read all the classic books on investing, including Burton Malkiel's A Random Walk Down Wall Street, Frank Armstrong's Investment Strategies for the 21st Century and John Bogle's Common Sense on Mutual Funds.

Through his product research, Selhi also concluded that there were simpler and more fruitful options for individuals than the heavily advertised, fee-laden mutual funds that investment advisers usually promote. He urged people to check out lower-cost, better-performing funds from the likes of Vancouver-based Phillips, Hager & North and U.S.-based Vanguard Group. All do-it-yourself investors needed to get started was someone to point them in the right direction.

For the most part, however, Selhi's website focuses on advice about investing, which is very different from investment advice. In recent years, he and several other volunteer sages and coaches have been regulars on several websites, and have got to know one another. Many of them are also self-taught. Others are industry professionals who are retired or disillusioned by the lack of truth about investing costs.

Together, this group has built a new website, http://www.financialwebring.com, that is a forum for a low-cost investing community. Through blogs, links and chat rooms, the site helps everyone through every step and unspoken nuance of the investing process. When I asked Selhi why he does all this, he responded with a question: "Why do people volunteer?" He doesn't make money from his work. The satisfaction comes from helping others.

Selhi and his band of self-help devotees deserve more attention. Go to financialwebring.com. Better still, if you're in the investment business or have some specific knowledge, offer some help yourself, and see what a little imagination and selflessness in a normally selfish and greedy industry can do for your personal sense of self-worth. You'll be richer for it.

Added from Jon Chevreau's blog, 04Apr06

SUBJECT: Free financial advice? The current issue of ROB Magazine describes how a certain Internet discussion forum provides “free” financial advice. “Yes, you can get free on-line investment advice that’s solid and has no strings attached,” the article declares, under the headline “No salesman will call.”

For investors paying anywhere from 1 to 1.5% a year (or more) of their portfolios to get financial advice through a traditional investment advisor, the existence of such advice must seem puzzling. Whatever happened to the old truism that “there’s no free lunch?”

The answer, of course, is that advice is seldom truly free and someone has to pay the piper. The article by Doug Steiner focuses on an associate of mine who posts on the web as Bylo Selhi. I’ve highlighted him in columns in the past. Like Steiner, I followed Bylo’s postings first at www.fundlibrary.com [“TFL”] and later at the discussion forum we seeded at www.theboomer.com and www.wealthyboomer.com [TWB], which ran in its original form from 1999 to 2005. Steiner says he and his colleagues in the financial industry estimated Bylo spends 30 to 50 hours a week “helping the little guys.” From what I know, I’d say that’s an underestimate, as is also the case for many others there.

However, Steiner does not mention TWB’s key role in the creation of the new forums, nor does he explain how it was financially possible to dispense such “free” advice in those forums over the years.

The forums at TFL were free to users but of course there was a cost involved: it was absorbed by various mutual fund companies that sponsored the site. The irony was that much of the TFL discussion spearheaded by Bylo was about low-cost indexing. The indexers were in effect biting the hand that fed them.

That crowd largely moved over to TWB in 1999-2000 but again there was a cost involved in providing a free forum. The idea was that the site would be subsidized by advertising in the pages of a magazine that published for four issues as The Wealthy Boomer.

When the magazine died, the forums continued because entrepreneur Tony Humble picked up the web hosting costs, which ran to several hundred dollars a month.

Humble – an angel investor and dot-com executive who also funded the magazine -- pulled the plug on the forums in the fall of 2003, passing the reins of TWB to me. For a while, I paid the tab so the “free” advice could continue to be dispensed at the forums. Some users chipped in by buying some Wealthy Boomer T shirts we’d printed up during the magazine days.

Finally, just as at TFL, we found a corporate sponsor – Barclays Global Investors Canada – which picked up the monthly costs. The community picked Barclays because its low-cost exchanged traded funds seemed to us most consistent with the low-cost investing advice being dispensed by most of the prominent forum regulars.

Finally, in February 2005, Bylo and three posters he met at TWB broke away and set up www.financialwebring.com, unceremoniously dumping both the corporate sponsor and myself.

Even the founders will admit the break could have been handled better and for the most part we have since patched up our differences. In November, the financial discussion “threads” at TWB were moved to what people now call “the Ring.” What remains of TheBoomer.com now focuses on the discussion of “everything but money.”

The cost of providing such forums has indeed now dropped to the point of being negligible, although it’s still a small cost picked up by the forum founders. I should add that this blog is one of 19 web sites included in the Ring.

Going forward, I suppose it is now possible to provide “almost-free” financial advice on the web. How objective or useful it is has to be evaluated by individual users. If indeed the advice dispensed gratis by a virtual army of financial experts is sound, you have to wonder how long consumers will pay 1% or more to a single provider under the traditional distribution model.