Online World Changes Tune Of Investors
GRAND RAPIDS — On the last Monday of every month, Jane Johnson connects with about 11 others at the Kentwood Public Library to discuss stock investing. While investment clubs have been around for decades, the Internet has made investing more approachable for the average person.
“The Internet has helped to begin to level the playing field from the good ol’ boys club to the individual investor, (who) has a much better chance and a much better opportunity to do well in the stock market than they ever have before if they are willing to educate themselves and do the research,” said Johnson.
Johnson is a member and director of publicity for the Western Michigan Chapter of BetterInvesting. BetterInvesting is a nationwide nonprofit investment education organization headquartered in Michigan.
The Internet has also opened up a market for firms such as Scottrade, E*Trade, TD Ameritrade, and other online brokerage firms, which provide services that streamline the relationship between individual investors and the stock market, allowing for more efficient trading. For some, these services are helpful; for others, it is a great way to lose money.
“There’s so much that goes into investing,” said Dave Durning, a certified financial planner and registered financial consultant at Great Lakes Financial Management InterSecurities Inc. “One little error can cost a lot of money.”
Even with the growing popularity of online brokers, Durning noted his company has continued to gain clients. Online investing typically attracts a different demographic than traditional brokers.
Karl Leskovar, a CPA and certified financial planner, as well as chief operating officer for Beene Garter Investment Advisory Services, agrees. He commented that very few of his clients have shown an interest in online investing.
“For the most part, people get so busy in their own careers and interests that they sometimes don’t have enough time to really devote to managing their own investments. I really haven’t seen a loss of business or clients or customers that don’t need professional advice, because most people don’t have the time to adequately take care of that process,” said Leskovar.
He describes the ideal client of an online brokerage firm as someone who has a strong interest and knowledge base in investing and wants to do the research. For that person, Leskovar said, online brokerage firms can be a great way to cut down on commissions and fees.
That is the reason Mark Holt came to Scottrade, an online brokerage firm with branches nationwide. Holt is now the branch manager of Scottrade’s Grandville branch, but worked on the full-service side until about 1998. Like Leskovar, he believes education is key to successful online investing and that most of his clients have done research on a particular stock before buying. Scottrade is known for its $7 trading costs and a $500 minimum to open an account.
“I think traditional clients are looking more for the advice of someone who is going to sit down with them and actually give them a specific stock recommendation; somebody who is not ready to make the decisions themselves,” said Holt. “I think the online investor is really looking to be more proactive. They want to be hands-on with their own investments, so they’re really taking a hands-on approach.”
When Holt initially joined the company, the majority of clients were in their 30s or 40s, but in the past six years he has seen a growing diversity in clients, both in their age group — which now includes retirees — and in investment amounts. “Ironically enough, we have a lot of investment reps who use Scottrade as their broker.”
Holt acknowledges that many people are simply too busy to manage their own investments and prefer to delegate the task to traditional brokers.
At Johnson’s investment club the focus is on helping people reach their financial goals. Part of that involves online research. Johnson suspects group members use online services.
“I think a lot of our members do use online traders. … Basically when you get a stock portfolio, you’ve got your own mutual fund, only you’re doing the buys and sells yourself and your managing it yourself and you’re not paying a broker to manage the fund, so if it does well or doesn’t do well, you’re totally responsible.”
Peter Breen, chief strategist for BetterInvesting, gave a brief description of the history of online brokerage firms that drew large popularity during the dot-com boom.
He stated that the “online brokerage industry formed itself during a time when nobody actually thought they would sell a stock for less than they bought it for.”
Leskovar said people began day-trading and leveraging equity in their homes, whether it was legal or not. He not so fondly reminisced about Grand Rapids getting in the mix with shops downtown full of stock-trading equipment that allowed people to day-trade stocks for a fee.
“I think what it did was create a generation of self-directed investors who lacked the fundamentals,” said Breen. “We got into the days where it literally became the Wild West.”
The dot-com market fell off and the market slid, with Sept. 11, 2001, being an exclamation point. That caused a heavy consolidation of online firms, he said. The firms that sustained the fall, Breen said, have today gained much more acceptance and trust. He also believes investors in their 30s and 40s have added to the credibility of online investing, as they are more Web savvy and comfortable with the security provisions of the Internet.
“We went through this Wild West period, and now that we’ve emerged on the back-end of that I think people are giving a lot of credence toward the online brokers who are left standing,” said Breen.
Looking forward, Breen sees a “melding of infrastructures” between online brokerage firms and traditional firms.
Leskovear noted that taking business online has been the trend in all areas of business. However, he worries that online trading may interfere with the personal relationships that are so crucial in the investing world.
“Sometimes it’s good to have someone to share ideas with in person — to have someone that can serve as a coach, so to speak,” said Leskovar. “In terms of education, in terms of assistance — I think some of that is hard to find on an electronic platform.”
Coaching is exactly how Johnson uses her broker. She uses the Internet to conduct research, but keeps in mind that her broker also is a knowledgeable source and can provide information.
“I have a personal broker because, before I make a trade, I like to bounce it off of him, and he can give me additional research, as well,” she said. “And sometimes I do what he says — and sometimes I don’t!”