ADVICE FOR SALE, CHEAP, FROM MORE NO-LOAD FIRMS: HEAD-ON COMPETITION FOR MOM AND POPS: FINANCIAL PLANS FROM USAA, PRICE, OTHERS

If you think no-load mutual fund companies are going to sit back and watch the financial planning explosion, just forget it.

United Services Automobile Association, the San Antonio-based insurance and mutual fund direct marketer, has launched a national campaign to offer services that include complex retirement- and estate-planning assistance.

The program, aimed at 25- to 55-year-olds, is priced at just $250 annually.

USAA’s recently launched Financial Planning Network is the most ambitious effort yet among direct fund marketers’ attempts to respond to investor calls for help in assembling financial plans.

Companies ranging from Fidelity Investments and Vanguard Group to T. Rowe Price Associates Inc. and Strong Capital Management Inc. are expanding their investment advice efforts or are considering doing so.

“Our members have let us know this is the kind of service where finding someone you can trust is paramount, and our members trust us,” says USAA’s Kathleen Wyble, vice president of financial planning. “We expect the Financial Planning Network to be a focal point for the integration of the numerous financial products we provide.”

The efforts of USAA and others are further signs of a structural shift that brings new players — and price pressures — to the field.

As the popularity of fee-based advisory services grows, and as intermediaries determine where more and more customer money flows, no-load fund companies have sought to keep customer accounts in house by offering a range of individual investor education and guidance tools. Their efforts are now evolving from simple education ventures — topical brochures, Web-based asset allocation models, retirement and college savings calculators — to much more complex services, such as individualized planning overseen by accredited financial planners.

“Those mutual fund companies who don’t heed the cry from investors are going to be making a significant business mistake,” says Stephen Advokat, manager of educ
ation and guidance at Kansas City, Mo.-based American Century Investments, which created the investor assistance unit two years ago.

But expanding into the financial advice business holds risks. Fund companies must strike a balance of providing the guidance their customers seek while not alienating the fee-only planners who continue to send billions of dollars their way. What’s more, offering investment recommendations exposes fund companies to potential litigation when things don’t work out.

Thus far, nearly all of the financial guidance services offered by no-load fund groups have been aimed at attracting retirement assets from older, affluent customers. Many have limited their investment recommendations to company-sponsored funds. But USAA’s initiative is designed to appeal to a broader market of consumers and will recommend specific investments in both USAA products as well as competitors’ funds.

nine pages of questions

Like advice services offered by other no-load fund groups, USAA provides its planning product through mailings and telephone consultations with certified financial planners. Investors begin the process by completing a nine-page questionnaire that assesses their financial situation by collecting information on income, debt, investments, past tax payments as well as insurance coverage, estate plans and risk tolerance.

USAA scores the data by computer, and the recommendations (developed with help from models created by KPMG Peat Marwick LLP) are reviewed by a certified planner before being mailed to the investor. The $250 service also includes two hours of telephone consultations with USAA planners.

Later this year, the firm expects to begin offering a cheaper service on single-topic investor questions, such as saving, debt management and financial concerns related to divorce.

Based on the efforts by USAA and other no-load fund companies, it appears that the number and scope of such services is likely to expand — while the cost to consumers declines.

“No-load organizations
have always recognized that the quantity of true self-directed individuals has not really increased over the past years,” says consultant Geoff Bobroff of East Greenwich, R.I.

But the fund companies are taking pains to insist they aren’t poaching financial planners’ prospects.

“T. Rowe Price doesn’t think it should be a comprehensive financial planning organization — we’ll leave that to the financial planning experts,” says Meredith Callanan, Price’s marketing manager for rollover investment services. “Our customers have specific questions in mind and they want us to answer those questions.”

The Baltimore company says it refers investors with more complex inquiries to the National Association of Personal Financial Advisors and to the International Association for Financial Planning. (So far, Price concedes, it has referred fewer than 5% of investors seeking its advice to these groups.)

more and more growth

Yet Price, Strong and other no-load fund groups also say their advice initiatives are only bound to expand. Executives at both Price and Menomonee Falls, Wis.-based Strong are studying plans to augment their guidance services later this year.

Price expects to begin testing an expanded service in the fourth quarter similar to USAA’s planned topical program, in which investors can seek help in such areas as estate planning and portfolio management. And early next year, the $88.5 billion-asset manager will consider recommending competitors’ funds alongside its own.

Strong executives say they’re studying whether to add an asset allocation service to a no-cost fund selection service in the third quarter that may include competing funds. Strong, which manages $23.8 billion in fund assets, isn’t saying if it will charge for the service.

Fidelity in Boston plans to introduce an Internet-based portfolio planner for 401(k) participants in midyear that would help customers with retirement planning and asset allocation based on finances, time horizons and risk tolerance. The compa
ny also is offering free financial planning advice for 401(k) transfers and individual retirement account rollovers exceeding $100,000.

A spokeswoman for the $565.6-billion fund manager says, “We are going to analyze how our customers respond” before deciding on whether to go further with the planning effort.

One reason USAA’s financial planning service treads closer to traditional planner territory is that the firm can afford to be less sensitive to complaints by planners: It markets to active and retired military officers and enlisted personnel and less than 5% of its $22 billion in mutual fund assets under management come from independent planners.

Vanguard, which began offering investment, retirement, estate planning and trust services in May 1996, plans to continue limiting its investment recommendations to its family of 94 mutual funds, which hold $350 billion in assets. But the Valley Forge, Pa.-based firm is focusing on trimming its current advice fees, which range from $500 for a one-time financial planning analysis to a minimum $3,250 for its full-service trust consultancy.

Says Vanguard’s Richard Stevens, manager of personal financial services: “We’re not here to capture the free world who needs advice, we’re here to serve our clients.”