Folio News

Matt’s answer: [S]imply stated, FOLIOfn has all the same investor safeguards as better known brokerages like Fidelity and Merrill Lynch.

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…FOLIO investors can create and manage their own portfolios, and each investor is a ‘beneficial owner’ of the securities in the portfolio he or she has fashioned, the SEC said.

As a result, a FOLIO is not a mutual fund, said the letter signed by SEC secretary Jonathan G. Katz.

FOLIOs are subject to regulation and oversight under other federal securities laws, Katz said.

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Fortunately, there are some alternate ways to invest in stocks that don’t require a lot of money — or even expertise. These relatively new investments sometimes have confusing names like exchange-traded funds or stock-basket services, but they’re not as complicated as they sound.

Best of all, they’re geared to long-term investors who don’t want to spend a lot of time worrying about their money.

Rather than buy individual stocks (and pay a brokerage commission each time), so-called stock-basket services allow investors with limited funds to buy a small piece of each stock in a group — or basket — of stocks of the investors’ own choosing.

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Brinker works with financial advisors to create asset allocation models for the wealthy. The firm then offers the advisors and their clients access to a pre-selected list of money managers. Hiring FOLIOfnwill enable Brinker to better manage its growing client roster, says COO Tim Henry.

FOLIOfn’s technology will help lower costs by increasing back office efficiency, Henry says.

Lowering costs, in turn, will enable Brinker to reduce its minimum account size of $400,000, he adds. So the FOLIOfnaccount will help Brinker draw from a wider range of potential clients.

Managing growth was such an important issue to Brinker’s future business plan, the firm analyzed its options for a year.

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Here’s how it works: Investors set up a portfolio of as many as 50 stocks, and then whatever amount of money they invest automatically goes to buying a piece of each of the stocks in the basket. In this way, you can achieve a well-diversified portfolio-sort of a mini mutual fund-with much less cash.

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Adley, who is self-employed, owns both mutual funds and individual stocks. But instead of moving more money into either investment vehicle, he handpicked stocks of his own choosing.

…[S]ome financial professionals are willing to offer clients folio-type products, which means investors who prefer advice and active management can get in on the action.

He was able to purchase his own basket of stocks in a single transaction, just as he would buy into a mutual fund.

Eugene Helm, chief operating officer of Wright Investors’ Service — a money management firm in Milford that works with FOLIOfn — said the alliance enables it to bring its private clients ‘institutional grade services.’

“Private clients used to have one account with one investing style-like large-cap,” Helm said. “Through FOLIOfn, they can have multiple FOLIOs, with different investing styles, within one account.”

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SEC Commissioner from 1994 to 1997, Steven Wallman engaged in unheard of practices for commissioners-getting involved in employment issues and launching entrepreneurial start-ups, among other things.

In March 2000, Wallman launched FOLIOfn, offering investors the ability to purchase and manage baskets of stocks made up of fractional shares. FOLIOfnstarted an institutional service for financial advisers in November 2000.

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Investors’ urge to stay in the driver’s seat — to keep control — is reflected in the flexible way that stock-basket products are set up. They cater to the urge to tinker. You don’t have to buy a whole suggested portfolio. You can evict one or more stocks, or build your own basket from scratch.

Thus, stock-basket services offer investors a chance to experiment at stock picking without spending too much money. They also force investors to think about taxes and prod them to diversify, which many ought to do.

And they can be fun, thanks to the elaborate customization capabilities of the Web.

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Enter [stock] ‘baskets,’ a new type of online investment vehicle that lets you spread your risk around efficiently You pick an array of stocks (with guidance from the service provider, if you want it) and then watch over them, deciding when to sell some and buy others The approach can be much cheaper than investing in a mutual fund or buying a collection of stocks from a brokerage firm.

Some experts say that baskets are the wave of the future in diversified investing, combining the stability of traditional mutual funds with the sense of control that comes with an e-brokerage account. “This is big,” says Jamie Punishill, an analyst at Forrester Research. “This will have a profound impact on the asset-management industry.”

…FOLIOfnlets you buy ‘fractional’ shares. That means that if a stock costs $60, you could buy $100 worth of it, rather than $60 or $120. That means you can add a set amount of money to your portfolio every month or so, a strategy that many experts recommend.

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Selecting private companies for the Red Herring 100 requires seriousness and rigorous analysis We tempered our admiration for entrepreneurs with a larger-than-usual dose of skepticism, because…every Red Herring 100 company must be a sustainable business The following companies not only met our exacting Red Herring 100 criteria, but …they also managed to delight us.

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FOLIOfn: Design Your Own ‘Mutual Fund’

THE HERRING TAKE: FOLIOfn’s low pricing and innovative service could fundamentally change the mutual fund industry…

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FOLIOfn was the first out of the gate, early last year, with flat-fee ‘FOLIOs’ for investors.

There are several ways to get started. The ‘FOLIO Wizard,’ a brief questionnaire about your goals and tolerance for risk, leads to a suggested list of stocks Or you can pick from around 100 pre-made portfolios based on basic investing styles (such as large-cap growth), indexes, [and] industry sectors…Or you can simply choose stocks yourself.

There’s a nifty ‘backtesting’ tool—so you can see how a FOLIO would have fared in the past against the S&P 500 or another index When you want to sell, FOLIOfnhelps identify which particular shares to sell to minimize taxes, a very useful feature.

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They’re starting to take advantage of products known as FOLIOs-diverse baskets of securities that can be tailored to a person’s needs, avoid brokerage fees and that could grow to be upward of a trillion-dollar investment market in 10 years.

“This down market has really impressed upon people the need and virtue of diversification, and that’s what FOLIOs are all about,” said Nancy Smith, vice president for investor education at FOLIOfn, Inc.

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Everyone agrees that Steven Wallman had a great idea…Last year the former commissioner for the Securities and Exchange Commission launched FOLIOfn, an online company allowing retail [and institutional] investors to create customized mutual funds, aided by powerful stock and investment style screens…To keep FOLIOfncompetitive, says the 47-year-old Wallman, “increasingly we are looking for partners to help us with distribution and marketing. Our expertise is in financial innovation.” He has made deals with CNBC.com and software company Advent Software.

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“Investment-management companies have used mutual funds as a delivery system for their services. We’re just offering a new type of delivery system,” says [FOLIOfnmanaging director Jeff] Helms. “Mutual funds are great for a certain type of investor. We fit another need.”

Controlling the stock within a portfolio certainly does have its benefits. Investors can screen their holdings, blocking ‘sin’ stocks and inserting other preferences. Tax harvesting is made easier, matching gains to losses. And capital gains can be guarded from build-ups. (In a mutual fund, all investors are subject to the capital gains of a holding-no matter when a purchase was made.)

“As you probably know by now, with FOLIOs, you can easily create a diversified portfolio of stocks. In fact, with just a few mouse clicks, you can get instant diversification with a couple dozen stocks,” boasts FOLIOfn. “Before FOLIOfn, it was much harder. You would have paid for 50 separate transactions. That’s expensive.”

The difference between buying individual securities and a FOLIO hinges on the single transaction. With FOLIOs, transaction costs can be reduced and portfolio-management economies of scale can kick in.

Traditional unit investment trusts sold through financial advisors have commissions in the 2.75% to 5% range, with a mix of upfront and deferred sales charges. Mutual funds sold with loads have a similar payout. And separate accounts typically sell for 2.25% to 3%. A FOLIO or personal fund would weigh in much cheaper-just an advisory fee and minimal transaction costs.

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FOLIOAdvisoris an unparalleled technological triumph and represents extraordinary innovation on every level of the financial services industry.

…[M]ost importantly, both mutual funds and separate account managers would be well served by adopting the FOLIO structure and, in fact, many are. Mutual funds can more aggressively manage their cost and gain access to tax lot accounting which facilitates more tax efficient investment strategies. Mutual fund companies also gain a vehicle which will make them more responsive to the needs of fee-based investment management consultants. The managed account manager is attracted to the FOLIO because it is far more efficient to administer than today’s separately managed account.

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That idea is FOLIOInvesting. FOLIOfnlets investors buy stocks in FOLIOs, or customized baskets, prepackaged by the brokerage or selected by the customer. Think of a FOLIO as a personalized mutual fund-a bundle of up to 50 stocks that can be either diverse or focused by industry, geographic region, or investment style. Wallman’s favorite example: An investor can use a FOLIO to buy the 30 most promising biotech companies, riding the industry’s growth without having to gamble on picking the two or three biggest winners.

Wallman is pitching his idea to investors as a way to cut costs, as well as boost their flexibility. For FOLIOfn’s $295 annual fee [or $29.95 monthly], an investor gets unlimited trades in three FOLIOs, each containing up to 50 stocks What’s more, a FOLIO investor enjoys the tax advantages of owning actual stocks instead of shares in a fund. An investor, for example, can decide to hold off selling stocks that have risen sharply to defer taxes until the next year.

In January, he rolled out FOLIOAdvisor, a web service that lets professional financial planners set up and manage FOLIOs for their clients, with as many as five FOLIOs per client. He also signed an exclusive deal with Advent Software Inc., the leading maker of software for professional money managers, to integrate FOLIO trading into Advent’s systems.

“When you buy a mutual fund, you get two things-low-cost diversification and professional stock-picking,” he explains. “FOLIOs plus advisers let you buy just one of those, or both, in the combination you want.”

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…for investors lacking the minimum amount for a customized private account, there is FOLIOfn, an Internet start-up that sells a half-dozen customized socially responsible portfolios.

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“It’s truly a turning point for individual investors,” remarked Nancy Smith, vice president for investor education at FOLIOfn.

The idea, said Smith, is that an investor would pay nearly $900 in commissions to buy three 20-stock portfolios at $14.95 a trade. The same FOLIOs, however, are possible via FOLIOfnfor about a third the cost.

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…FOLIO investors have full discretion over what they invest in. Investors…choose stocks for their FOLIO or pick from ‘ready-to-go’ FOLIOs that focus on specific industries or issues.

FOLIOs can be tinkered with as much or little as the customer desires.

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FOLIOfn, which I tested myself…[is] the real thing FOLIOfn has more ins and outs than I can cover, but here’s my single favorite feature: the clear and full reporting of costs and performance.

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