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Do-It-Yourself Investing Gets Easy

Web-based experts tap the latest technology to offer cheaper advice

Among the new players, Wealthfront and Betterment emphasize their software, which assesses clients' risk tolerance, analyzes their goals and constructs diversified portfolios for the money invested. Both firms allocate their customers' money among several low-cost exchange-traded funds primarily from Vanguard, then rebalance automatically so the ratio of stocks and bonds doesn't stray from the target mix.

Venture capitalist Kittu Kolluri, 50, of Saratoga, Calif., tried Wealthfront after hearing about it from his nephew. While most of Kolluri's wealth is still invested with a traditional adviser who gives him access to specialized investments such as private equity deals and hedge funds, Kolluri says his smaller Wealthfront account is earning returns as good as or better than the publicly traded stocks and bonds his regular adviser has picked.

Susan Shaffer, 67, of Yardley, Pa., tried a variety of traditional advisers before investing about $100,000 two years ago with Betterment. Shaffer, a manager for a pharmaceutical company, liked Betterment's low fees and its investment options. Some of Shaffer's previous advisers were "constantly moving funds around" — either from investment to investment or in and out of the stock market, she says. Others recommended she stick with a limited number of stocks or mutual funds. She was concerned she wasn't diversified enough, and the cost of all this active management was about 1 percent a year.

"The fees were higher," says Shaffer, "and I wasn't really seeing the returns."

What Wealthfront and Betterment don't do is provide comprehensive financial planning. Outside funds, such as 401(k) retirement savings or accounts at other brokerages, aren't tallied in their assessments.

But other new sites do look at the bigger picture. FutureAdvisor analyzes all of an investor's accounts for free. The site also offers ongoing management — for a fee — of accounts held at Fidelity or TD Ameritrade, as well as any accounts investors are willing to transfer to those brokerages, says CEO and cofounder Bo Lu.

Jemstep, meanwhile, focuses on retirement accounts. Though the site currently doesn't manage money, it provides monitoring and alerts to clients. SigFig analyzes portfolios for underperforming assets and recently added a service that will automatically implement its recommendations. The analysis is free, while fee-based management costs $10 per month for all accounts over $10,000.

Even sites that offer more complete analysis typically aren't providing comprehensive advice. The technology-focused services generally don't offer guidance about how to get the maximum Social Security benefit or how to determine what's your best savings withdrawal rate in retirement.

That's the bailiwick of firms like Personal Capital, an online money manager that merges technology with the human touch. People who invest over $100,000 are offered a diversified portfolio of exchange-traded funds and individual stocks, plus they're assigned a personal adviser to answer questions and provide guidance.

Those human advisers "are how we distinguish ourselves from the technology firms," says CEO and founder Bill Harris, a former head of PayPal and Intuit, "and technology is how we distinguish ourselves from the traditional advisers."

That high "touch" — the human component — comes at a price. Although Personal Capital provides free account-tracking software, hiring an adviser — reached via phone, email, video chat or instant messaging — triggers a fee.

Alexa von Tobel, who left Harvard Business School to start LearnVest in 2009, agrees that the human touch is needed. It's more important to offer advice, she says, than investments.

"For most people the problem isn't that they have an abundance of assets," von Tobel says. "They're living paycheck to paycheck. They need advice so they can have enough money to invest."

And while a lot of the services target younger people "who are more comfortable interacting with a mobile device than a person," says Inside Information's Veres, older investors are catching up. More than 600 of Wealthfront's nearly 6,000 investment clients are 50 or older; their accounts on average are greater than $150,000 — 50 percent larger than that of the site's typical client, says Adam Nash, chief operating officer of the Palo Alto, Calif.–based firm. "The baby boomers were the generation audacious enough to believe you don't need a full-service broker to place a trade over the phone," says Nash, referring to the advent of discount brokerage Charles Schwab in the 1970s. "They understand the value software can bring to create a low-cost portfolio that's smart about taxes."

Liz Weston is a freelance personal finance writer based in California and author of Deal With Your Debt.

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