Folio News

With a total of $20,000, for example, the fee amounts to only 1 percent a year. The fee, which remains constant, has less and less impact as the account grows. (With an account under $20,000, better to use Vanguard and reduce the diversification.)

Headquartered in Virginia, FOLIOfn’s founder and Chief Executive is a former Commissioner of the Securities and Exchange Commission. Everything’s on the up-and-up.

At FOLIOfn, you don’t have to fiddle with the number of shares. Instead, use the firm’s “Window Trading.” You direct the firm the amount of money you want to buy or sell of each security. Twice a day, the purchases and sales of all Window-Trading customers are pooled, with the orders executed as a group. FOLIOfn allocates fractional shares, making the transactions come out to the penny.

You pay nothing extra for this; Window Trading is covered by the $199 annual fee. True, you can’t pick the exact time of day to trade. (Doing so would cost $14.95 per trade.) But if you hold your securities for many years, as you should, the time of day you bought them won’t matter one bit.

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FOLIOfn’s pricing plans allow you to conduct as many as 600 trades during two daily transaction windows. You can treat each folio as a separate unit, distributing a specific dollar amount evenly across all the stocks in a folio, or sell a folio’s entire contents at once. You can also rebalance a folio with a few clicks of your mouse.

If you want to trade an individual stock outside the transaction windows, it will cost you just $3.95 per transaction-a low fee that the firm introduced in March.

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Members of the $8 billion CU will be able to purchase a range of stocks, exchange traded funds, mutual funds and American Depository Receipts, as well as invest in ‘Folios’-diversified, customizable portfolios of individual securities that investors can select and manage on their own. FOLIOfn also offers ‘Ready-to-Go-Folios’—pre-built portfolios, based on various indices and investment styles and contain up to 50 securities that investors can modify. Members also can select from nine new ‘Mini Folios’—portfolios of between three and five exchange traded funds each, with each portfolio representing an investing style, from short-term to long-term and conservative to aggressive.

“For many years we have searched to find the right provider of brokerage and investment services for our members, and we are very pleased to join forces with FOLIOfn,” said Frank Pollack, president/CEO, Pentagon FCU, which serves more than 650,000 members worldwide.

Pentagon FCU’s partnership is the latest for FOLIOfn, which also provides brokerage services available to more than 1,000 CUs through an alliance with CUNA Mutual Group.

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FOLIOfn will offer nine ready-made ‘mini folios’ of ETFs tailored to an investor’s tolerance for risk and investment goals, the company said.

The credit union wanted “diversified portfolios that could be further customized by individual investors quickly and simply,” said Steven Wallman, chief executive of FOLIOfn.

“ETFs allow diversification into stocks and bonds easily, so they’re good for setting up the asset allocation in a portfolio,” added Wallman, a former commissioner of the Securities and Exchange Commission.

FOLIOfn is gearing the Pentagon credit-union portfolios to investors’ aggressiveness and time horizon. Shareholders can choose from conservative, moderate and aggressive options, which are further divided by short-, intermediate-and long-term perspectives.

The portfolios are more customized than so-called target-date funds, which only take into account an investor’s projected time until retirement, Wallman said.

“Taking one example, a 25-year old might be saving up for the short term to buy a house, while another person the same age may be investing with longer-term retirement goals in mind,” he said. To determine their investment profile, members of the Pentagon credit union complete a short questionnaire before selecting one of the mini-folios. From there, participants can own a mini-folio for $5 a month with no minimum investment.

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Recently, the Vienna, Va., company launched Mini Folios-nine portfolios that are made up of exchange-traded funds, baskets of securities that trade on an exchange like stocks. The folios were created for the Pentagon Federal Credit Union after it chose FOLIOfn as its official online broker, but are available to any smaller investor looking to get a diversified portfolio in one fell swoop.

Each Mini Folio contains between three and five ETFs and represents a different investing style based on time horizons and risk tolerance. Investors can choose to keep the portfolio as is, or customize it to fit their specific needs. (That includes trading ETFs, stocks, other exchange-traded securities and the approximately 1,000 mutual funds that are available through FOLIOfn.)

For Pentagon Federal Credit Union members, FOLIOfn is offering a plan that charges $5 per month and includes five commission-free trades per month. (Like other FOLIOfn products, there is no minimum investment required because the firm trades securities in fractions of shares.)

For other investors, though, that pricing plan doesn’t apply.

“We just pioneered that [plan] for the Pentagon…we’ll see how it goes. We may roll that out to other investors as well,” said Steven M.H. Wallman, chief executive of FOLIOfn Investments’ parent company, FOLIOfn Inc.

While the full Folios generally target larger investors, Mini Folios are intended for investors with less than $15,000 to invest. If investors accumulate more than that, they can go to the Web site to upgrade their pricing plan.

“The Mini Folios are designed for people who are looking for a smaller portfolio than can be bought with only a few trades,” said Wallman.

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“For many years we have searched to find the right provider of brokerageand investment services for our members, and we are very pleased to joinforces with FOLIOfn,” said Pentagon Federal Credit Union CEO Frank Pollack. “They are a firm that understands and can support our mission of deliveringbest-in-class, high-value, easy-to-use services that are good for our members.FOLIOfn’s range of products and services meets the diverse investment needs ofour membership-from the simplest and lowest-priced offerings for beginninginvestors to highly sophisticated ones for those who are more experienced,” Pollack said.

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“Our firm’s mission is applying technology to bring services to the market that enable better investing for all investors-the small ones as well as the large ones,” said Steven M.H. Wallman, CEO of FOLIOfn Investments’ parent company, FOLIOfn, Inc. “We are very pleased to have the opportunity to provide these benefits to Pentagon Federal Credit Union members.”

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Like other Folios, the pre-built Mini Folios can be customized by the investor. Pentagon Federal Credit Union members with less than $15,000 to invest can own a Mini Folio for a special price of $5.00 per month, with no minimum investment. The cost includes five commission-free trades per month.

“We believe these Mini Folios will be an easy way for many of our members to begin an investing program with a properly diversified portfolio,” Pollack said. “They will be able to build and control their investment portfolios over time, and they will be able to do it on a very cost effective basis.”

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FOLIOfn is a leading provider of brokerage services to the credit union industry. The firm also delivers its services to this market through its alliance with CUNA Mutual Group, the primary supplier of financial services solutions to credit unions and their members, worldwide. Through its CUNA Mutual alliance, FOLIOfn makes its brokerage services available to the members of more than 1,000 credit unions.

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Pentagon Federal Credit Union members also can select from nine new ‘Mini Folios’—portfolios of between three and five ETFs each, with each portfolio representing an investing style, from short-term to long-term and conservative to aggressive. A simple-to-use FOLIO Wizard® makes it easy for investors to choose the Mini Folio that best fits their investment ‘personalities’ and goals.

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Through Vienna-based FOLIOfn, Pentagon Federal Credit Union members will be able to buy stocks and mutual funds as well as invest in what are called ‘Folios’—diversified customized portfolios of individual securities that investors can select and manage on their own. FOLIOfn provides services to about 1,000 credit unions through its alliance with CUNA Mutual Group.

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However, according to S&P, many stocks carry over from one portfolio to the next. S&P creates the portfolio using a screening program that scans through the entire stock market looking for stocks that Warren Buffet might like, based on published accounts of how he selects stocks.

The biggest problem with using S&P’s Buffett screen is that it picks a lot of stocks. The August version includes 58 stocks. Using traditional stockbrokers, that may be too many stocks for many investors. However, there are specialized brokers such as FOLIOfn (www.FOLIOfn.com), which allow purchase of fractional shares and are set up to economically handle portfolio style investing.

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FOLIOfn developed its trading platform three years ago and made a firm commitment based on advisors’ demands to enter the 401(k) business in mid-2003. Advisors who are aligned with the firm are leveraging its capacity to maintain separately managed accounts at smaller account balances by trading fractional stock shares.

Most of the separately managed account growth stems from plan sponsor clients at smaller professional service businesses, such as medical practices and law firms, Vigrass said. Individual participants at these businesses want more control over their assets than mutual funds typically provide. In addition, the investment advisors appreciate the ability to coordinate their clients’ retirement assets with non-qualified accounts.

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Some experts say companies should report financial results monthly or even daily. More information would make stocks less volatile and managers would have a harder time gaming their results.

Steven Wallman, who was a commissioner at the SEC from 1994 to 1997, says companies could easily post real-time information on the Web using the technology most already employ to track their finances.

“Keep in mind, the markets are real time,” said Wallman, who is now chief executive officer of FOLIOfn Inc. a brokerage, financial technology and proxy advisory firm. “If you’re getting something every day, what it is at the quarter becomes a much less relevant notion… It’s one way to eliminate the shortsightedness that seems to be creeping into the market.”

The arguments against daily disclosure are that it would increase securities litigation liability and give competitors too many details about how a company operates. But Wallman said the first problem can be fixed by changes in securities law. As for competitive information, he said that while he worked as a consultant, the best information on a client often came from the competition.

“It’s relatively obvious that large companies know about the large companies that are their competitors,” he said.

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For example, say you wanted to invest an equal amount in each of the Fortune 40 I talked about in my last post. You would simply give each security a 2.5% allocation. Once the folio is set up, FOLIOfn makes the trades for you in what is called a “window trade,” which is a process by which FOLIOfn matches buyers and sellers internally. Windows trades are done at no additional charge.

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Like a conventional sponsor, the system creates model portfolios and then recommends managers for each of those allocations from a stable of 30 managers in seven different disciplines as well as a number of mutual funds…KPMG is not actually a sponsor…it’s offering the system as a tool for firms that want to act as their own TAMP.

Managers route their recommendations to Folifon, which actually runs the portfolio. KPMG’s tool can optimize a portfolio for tax efficiency, but it stays clear of on-going tax management, according to Greg Vigrass, executive vice-president and head of institutional sales for KPMG’s brokerage partner, FOLIOfn. FOLIOfn does not offer tax management either. However, Vigrass says, the system does have some features that simplify tax planning.

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“The Asian marketplace had been dominated by a high-trading view. Investors did not diversify,” adds Steven Wallman, CEO of FOLIOfn, which partnered with Japanese brokerage firm Nikko Cordial Advisors last year to offer separately managed accounts to Japanese investors. He says that the market in Asia has changed significantly over the last few years and “people see the need for more stable capital, more long-term investing. The MDA allows for broad diversification.”

Wallman says there is a fear factor to overcome in markets where these types of products are new. “Over time these offerings will do well in Asia. A new product takes education, training, time to understand it. It’s a lot for investors to commit their life-savings into something. There has to be a cultural shift,” he says.

Wallman adds that there could be a downside to Citi’s strategy. by exporting something that has worked for it here, Citi is taking a safe route and could encourage competitors like Merrill Lynch to follow suit with their own existing products, he says.

He believes, nevertheless, that firms like Nikko, through its partnership with FOLIOfn, and Citi have a distinct advantage in the Asian market. “Whenever a firm has led some revolutionary change in financial services it takes a long time. The people that get in early master it. They build reputation and expertise,” he says. Nikko estimates that its separate account business could approach $20 billion in assets within ten years."

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FOLIOfn, the Vienna-Va.-based financial services technology company, will provide the infrastructure and architecture for the outsourced offering. GregVigrass, executive v.p. of FOLIOfn, says that a number of regional and midsized banks and broker-dealers have expressed a growing interest in offering managed accounts but have encountered a number of difficulties in trying to enter the marketplace.

“It’s certainly a viable marketplace because they are looking for inventive ways to get past some of these barriers,” says Vigrass. “Cost is a major factor for them, and architecture, ease of deployment and flexibility are someof the other major issues that they have to deal with when it comes to internal programs or some of the other offerings out there.”

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The new program, which is being introduced under the deliberately generic name Managed Asset Services, is designed to be less expensive and more flexible than the varied mix of older and more cumbersome TAMPs on the market.

Among other features, the program will provide sponsors such as banks, brokers and advisory firms with the flexibility to employ private labeling.

While the program that is being promoted as bringing together the best of Vienna, Va.-based FOLIOfn and New York-based KPMG is considered ideal for smaller brokerages and financial advisory firms just entering the separate-accounts arena, it also could appeal to a number of larger players…

Greg Vigrass, a FOLIOfn executive vice president, said the program is likely to appeal initially to smaller banks, brokers and insurance companies that are interested in putting their brand name on the platform and reaching customers with smaller account balances.

And as separate accounts are more readily available through these distribution channels, he said, it will be up to each program sponsor to determine how far into the retail market it will reach.

“There may be different minimum-investment requirements at different firms, but the technology exists to take separate accounts as far downstream as users want to go,” Mr. Vigrass said. “This [new program] has the potential to move separate accounts down-market, but they’ve still got to make money.”

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The FOLIOfn Gold Membership provides 10 free market orders each month, with additional market, limit, stop and stop-limit orders at $3.95 each. The plan also includes up to 600 commission-free window trades each month. Its $39.95 per month, or $399 per year, membership fee makes it the preferred plan for the investor who wants to own and manage a broadly diversified portfolio.

“Our technology and pricing provide all investors the ability to pursue investment strategies that would be possible or practical only for high net worth clients at other brokerage firms,” Wallman said. “For example, our clients can buy a complete portfolio containing 30, 40 or 50 securities at once. Then, they can cost effectively place limit or stop orders on individual securities within the portfolio to help protect profits.”

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The firm’s tax management tools facilitate trade management in line with one of eight tax strategies that can be pre-selected by the investor. The system also automatically tracks and records tax lots for every trade and allows losses to be easily harvested for tax purposes. Tax documents are delivered online, and data can be downloaded easily into spreadsheets and tax preparation programs.

“Our new trading plans and our powerful online tools provide exceptional value for the individual investor who wants to combine low trading costs with the ability to establish a diversified portfolio instantly and manage it effectively,” Wallman said. “We’re confident that investors who sample our service and compare it with those of other online brokerages will choose FOLIOfn.”

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No minimum number of trades or minimum account balance is required, according to the Vienna-based company.

FOLIOfn CEO Steven Wallman says the company’s patented trading system, which has a fractional-shares trading capability, enables customers to diversify instantly and buy complete portfolios of securities without a minimum investment.

The firm’s Silver Membership provides unlimited $3.95 trades based on monthly or annual memberships, the company says. It also provides up to 400 commission-free trades per month in FOLIOfn’s daily morning and afternoon trading windows for an introductory price of $24.95 per month.

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“Our mission is using technology to enable better investing,” said FOLIOfn Chief Executive Officer Steven M.H. Wallman, “and we have leveraged our advanced technology to introduce what we believe is the industry’s most truly useful online brokerage service for the individual investor.

“Our $3.95 per trade pricing plans for market, limit, stop and stop-limit orders, combined with our commission-free trading in our twice-daily trading windows, make us the choice for cost-conscious investors,” Wallman said. “And our patented trading system, with its fractional shares trading capability, allows our customers to diversify instantly, buying complete portfolios of securities with no minimum investment. Our powerful performance tracking, portfolio management and tax management tools are the same ones major investment advisory firms use to manage their clients’ portfolios. We’ve combined all these advantages to help our customers become smarter investors.”

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FOLIOfn’s $3.95 commission covers unlimited shares and applies not only to orders to buy or sell stock at the best price available—or “at the market”—but also to orders executed when certain conditions are met, such as buying stock when the share price is at or below a “limit.” The $3.95 commission is available to FOLIOfn’s silver- and gold-level clients and is part of a revamped menu of trading options offered by the firm.

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At least two companies-FOLIOfn and Fidelity Investments-are offering this type of investment, which has emerged in the last five years. The offerings are somewhat different, with FOLIOfn’s ‘folios’ and Fidelity’s ‘basket trading.’

Folios are baskets of securities, with each basket containing up to 50 items. Holdings might include stocks, mutual funds, exchange-traded funds or any individual securities. Investors can add or subtract securities from the baskets or change the value of the investment before or after they are established. Securities can be bought in whole or fractional shares.

FOLIOfn also created roughly 100 ‘ready-to-go’ folios that contain about 20 to 30 predesignated stocks that track an industry, an index or a theme. Investors who are reluctant to build their folios completely from scratch can use these as templates to get started and then make changes as they see fit.

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At FOLIOfn, based in Vienna, Vainvestors can choose a plan…that permits them to set up a portfolio containing up to 50 securities. Investors can make as many as 200 trades a month during two daily trading windows or pay $14.95 each for trades outside those windows

FOLIOfn requires no minimum investment to open an account…After opening an account…investors can buy any securities they wish.

Using FOLIOfn’s service, it is relatively easy to create a broad portfolio immediately, based on more than 100 models, including those that track the Dow Jones industrials or indexes of Japanese stocks, biotechnology stocks and junk bonds. Each quarter, or whenever there is a major change in a portfolio because of a merger or other events, FOLIOfn updates the portfolio and notifies investors by e-mail. Customers can decline to change their portfolios, or can customize them as they see fit.

Another issue is cost, said Don Phillips, managing director at Morningstar. “Probably buying an index fund is going to be your lowest-cost option if you have up to, say, $50,000 to invest”, Mr. Phillips said. For those with more money who want to manage their own portfolios, he said, using the FOLIOfn service, for example, “will probably be much more attractive than doing it through a conventional brokerage account.”

Mr. Wallman said that it was possible, using FOLIOfn, to sell stocks at a loss to offset capital gains elsewhere in their portfolio, thereby avoiding many of the taxes associated with funds making capital gains distributions.

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