Tag Archives: finance

Future of online trading: App stores for investing

It’s been a truism that the secret to runaway success in technology has PlatformLeadershipBookalways been in platform building.

I learned about the intricacies of building platform leadership from a book by the same name, “Platform Leadership” which I read during my MBA. The book by Gawer and Cusumano detailed how Cisco, Intel and Microsoft drove industry innovation by building a robust, standardized technology platform other leading-edge products could plug into.

The premise of the book was powerful: companies that could create products/services that served the center of a powerful ecosystem of ancillary items built on top of these products become extremely valuable.  Think Intel Inside and Microsoft’s dominance of the OS.  Presently, think of what Salesforce.com is doing with its platform as well as Apple’s iPhone App Store.  By creating a platform around which 3rd party developers are incentivized to design and build products, these companies have created something much more valuable and harder to displace than a mere product.  They’ve created a platform.

Investment field riddled with platforms

The investment field is riddled with platforms, too.  Bloomberg runs an empire based on an install-base of thousands of terminals in most of the leading investment institutions around the world.  You want to reach institutional investors with financial content? Gotta work through Bloomberg.  Yahoo Finance is the granddaddy of financial websites, far and away seeing more pageviews than any of its competitors.  You want to reach the retail investor, gotta get on Yahoo Finance.

Platforms provide necessary structure to certain markets.  In the investment field, platforms like Bloomberg and Yahoo Finance serve to

  • Aggregate content: investors don’t have to hunt down information by doing hundreds of Boolean searches on the Internet.  By serving as content aggregators, the platforms serve as a clearing house and central node to consumer info.
  • Establish an orderly market: Platforms create order by creating certain standards for their products and partners.  Bloomberg and Yahoo Finance established syndication guidelines via which partners must comply to be on the platform.
  • Create viable business models: It’s not clear to me that many investment research products could survive on a standalone basis.  Investors don’t like to pay for content and by aggregating pageviews on a single site, Yahoo Finance actually creates a viable business model for their partners and shares it out with them.
  • Consolidates usage to make single a jumpoff point to reach users: By consolidating the market, making it orderly and putting viable financial metrics behind it, finance platforms are the gateway to the users.  It’s too hard, complicated and expensive to reach investors directly.  These platforms act as market makers for the investment content bringing suppliers and customers together.

Online Brokerages as Investment Platform

While reviewing a recent product/service that E*Trade launched last week, I stumbled upon the realization that online brokerages are doing the exact same thing that Apple is doing around the iPhone.

In fact, it’s a HUGE misnomer to call these firms “online brokers”.  What were once merely online trading systems, companies like Ameritrade and E*Trade are actually now in the platform business.  As this evolution develops away from just trading toward the development of a true investment platform, these firms are creating something so much larger than just online trading or banking services.  I like the term “investment platform”.

Ameritrade’s Premier Partners


Check out what Ameritrade is doing with its partner platform.  This page lists a handful of 3rd party applications that run on top of Ameritrade for clients to receive trading alerts, Jim Cramer’s wisdom, ongoing advice about when to sell and some nifty charting.

None of these services are completely groundbreaking in and of themselves, but Ameritrade is establishing itself as the nucleus of the investment ecosystem.  By allowing developers to build tools and hook them up to Ameritrade’s API, the firm is concretizing its position as the investment platform of choice.

You want to reach investors?  Gotta get on the platform.

While the platform provider has an unbelievable amount of power, on the other hand, having a platform enables software/services developers to effectively reach the investor smack dab in the middle of the investment process — something heretofore impossible to do.  Look to see a lot of services develop around this ecosystem.

It’s like milk — for everyone

It’s a boon for Ameritrade — they can provide more services for their client base without developing them in-house.  It’s a boon for consumers because they no longer have to wait on their broker to provide new services.  It’s a boon for software developers because a move toward a platform puts them in business.

Maybe this was self-evident.  Maybe others understood that this evolution was unfolding right in front of us. In fact, both Ameritrade and E*Trade have allowed 3rd party financial advisors access to their platform, technology, services and clients for years.  Yet, I think this is a huge breakthrough in the understanding of what the future holds for these particular firms, their clients and technology development. It’s the financial industry’s equivalent of a mash-up.


Additional Resources


Wither financial guidance when we need it most

I’m going to go out on a limb here and say that this financial crisis was totally avoidable.

No, not the popping of the Greenspan debt bubble — that was inevitable — but the slamming of the stock market in its wake.  This recession and destruction of financial firms was certainly probable – if not likely – and it caught most publicly traded companies completely off guard.

Financial advisors are paid to manage portfolios for any eventuality (hopefully).  If there is an X% chance of Y happening, the portfolio should take this into account and reflect a particular stance.

So, too, Investor Relations.

Financial communications to investors should be managed with the same risk management that people managing investments employ. There’s too much finger-pointing, sitting on hands and pulling back in financial communications — especially during these crazy times.

Ultimately, all this means that investors are left holding the proverbial bag — and the bag is certainly a lot less full than it was 12 months ago.  And what’s worse is that companies are retracting their lifeline with the investing public just when we need it most.

The National Investor Relations Institute (NIRI) does periodic polling of their constituents.  Check out its press release (.pdf) published yesterday.

Couple of salient data points:

  • 60% of respondents provide earnings guidance compared to 64% in 2008.
  • The primary reason cited for ceasing earnings or other financial guidance within the last 12 months was due to a change in visibility / forecasting ability of business. (emphasis mine)

While a 6+% year-over-year drop in companies offering earnings estimates is not catastrophic, it’s not encouraging either, especially giving its timing.  It certainly is harder to communicate guidance during tumultuous times because guidance becomes so much harder to gauge.  But the same NIRI survey also shows there’s been a pullback in all types of guidance, including non-financial guidance.

With banks cutting their research staff, newspapers going under, and ad-supported financial content having a harder time of it, investors are left with at least one traditional, valuable source of information — companies themselves.

It really is an opportunity for companies to distinguish themselves by providing straight information, timely communications and no-nonsense bull.  Investors deserve it.

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Adviser Use of LinkedIn May Violate SEC Rules

Today’s guest post comes from Bill Winterberg, CFP®, an operations and efficiency specialist to independent financial advisers.  I thought Bill’s perspective important as we continue to explore how financial advisors can use web 2.0 technologies to build their businesses.   Check out more of Bill’s good stuff at www.fppad.com and on Twitter at @BillWinderberg


I’m going to open up a topic that has the potential to create a bit of controversy.  Here’s my bold statement:

Investment advisers registered under the SEC who use the “Recommendations” feature of LinkedIn.com may be in violation of Rule 206(4) of the Investment Advisers Act of 1940.

I’ve discussed this topic with several members of my local financial planning community, including investment adviser litigation defense attorneys.  More recently the topic has come up in discussions with other professionals I have connected with through Twitter, including Susan Weiner, CFA and Kristen Luke.

Investment Adviser Rules

Let’s start with Rule 206(4)-1(a)(1).  It says the following:

a. It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of section 206(4) of the Act for any investment adviser registered or required to be registered under section 203 of the Act, directly or indirectly, to publish, circulate, or distribute any advertisement: (1) Which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser

This rule explicitly prohibits the use of testimonials of any kind, whether they directly or indirectly refer to the investment adviser.  Testimonials cannot be published, directly or indirectly, by registered advisers.

LinkedIn Recommendations

LinkedIn Recommendations allow users of the online social networking website to post recommendations and endorsements that appear on the profile page of other users.  Recommendations are useful for supervisors to provide valuable feedback concerning the performance of an employee, or perhaps business owners to comment on the performance of contractors.

As LinkedIn becomes increasingly ubiquitous in the social networking space, I see more and more investment advisers that have set up profiles on the site.  A LinkedIn profile not only helps advisers connect with other advisers and colleagues, but it can also attract prospects and potential clients searching for a qualified adviser.

But what happens when investment advisers registered with the SEC begin to receive recommendations that are posted to their profile?

Any Testimonial of Any Kind

We’ve plainly seen in IAA of 1940 that testimonials of any kind are strictly prohibited by Rule 206(4)-1(a)(1).  So what is an adviser to do?

I believe the answer is that all State and SEC-registered investment advisers must never allow LinkedIn Recommendations to be posted to a public LinkedIn profile.

Are there any real cases where the State or SEC has fined an adviser or issued a deficiency notice?  I have not heard of any as of the date of this post.

However, I would prefer that the first public reference to such a case not feature my name in it.  As such, I do not permit any recommendations to be posted to my LinkedIn profile. I recommend that registered investment advisers clear their profile of recommendations as well.

If Wall Street won’t pay for financial content, who will?

Do you use a friend’s subscription to log in to a premium finance site?  C’mon, we all do it at some point.  Whether it’s an expensive investment newsletter or a premium version of the WSJ or some other news/research platform?  Well, whether you admit it or not, we’re in good stead.  AllThingsD reports today about a fracas breaking out between the FT and Blackstone.

The issue at stake?  Seems that the venerable, (previously) multi-billion dollar Blackstone has multiple users logging into a single FT subscription.  It’s a bit of a mountain made out of a molehill at this point but I think there are some important issues at stake:


User perception of free content needs to evolve like it has with music downloads: Whatever you want to say about the RIAA’s methods in hunting down poor, old great grandmothers and slapping huge lawsuits on ’em, users of music downloads are still paying for content.  According to ReadWriteWeb, the best selling mp3 download on Amazon in 2008 was also available for free (it was Nine Inch Nails, by the way).

On the Creative Commons blog, Fred Benenson asks why people chose to pay for the NIN album even though they could have had it for free. While, as he points out, ease of use is surely one reason, most fans probably simply want to support their favorite musicians by actually paying them directly for their music.

Sorry to sound pollyannish here, but using another’s login is akin to stealing.  I’ve heard cases where a subscriber has requested being able to share info with another family member and had the request granted.  Once we get to the point, as in the quote above, where “most fans probably simply want to support their favorite musicians by actually paying them directly for their music”, it’s going to be hard to protect premium content from theft.  I also believe there is a moral/legal distinction between a father and son using the same TheStreet login versus a for-profit business, like Blackstone, not paying up for multiple licenses.

The fact that we too easily share logins like this illustrates that we’re not there yet.

Distinguishing what type of content people will pay for:  I’ve always maintained that people are willing to spend money on things that will clearly help them make money.  This is why the investment newsletter business continues to prosper.  While music sales are down, I think what is happening is that consumers of music are unbundling traditional bundles of content and paying only for those songs they like.  It’s like saying no to call waiting and yes to an answering service from your local telecom provider.  Musicians are having a hard time releasing substandard material and packaging it together with one or two hits.  Just from an informal survery in my immediate network, almost everyone I know who was using free file sharing software is purchasing music from iTunes or Amazon now.  They are just more selective in what they purchase.  Content providers need to take consumer behavior into account when determining where the line between free and premium content lies.

As companies like the NY Times teeter on the verge of insolvency, we need to quickly rethink what it means to sell financial content online.  Clearly the traditional newspaper business is dead, but the news business is alive and kicking.  There is some interesting discussion of a new non-profit newspaper model over on the New Yorker site (you can see it here).  Paid newspaper staff is necessary for making news — free blogs are good at interpreting the news.  Both need to survive to provide us with a full spectrum of news, opinion and actionable content.

Photo Credit: Bex and Paul > Bratislava

3 investment sites to uncover the next big blowup

In the wake of the Bernie Madoff scandal (Clusterstock has some great coverage), the Satyam fraud, and whatever else lurks around the corner, investors have lost billions of dollars of investable assets at the hands of hucksters.  While most investors shrug off fraud as improbable, there are those analysts who studiously work to uncover inconsistencies, lies, coverups and what-have-you to help others avoid such pitfalls.  Avoidance is one way to play the game while others, like David Einhorn’s much publicized shorting of Lehman Brothers, may choose to outright bet on such firms’ downfalls by shorting the companies.

Whatever tack you take, here are 3 of the best sites around to help uncover the next big blowup:


Who runs it: Michelle Leder has been a pioneer financial blogger.  footnoted.org was launched in August 2003 (here’s the first post) to coincide with the publication of Michelle’s first book, Financial Fine Print. As a freelance business journalist, her work has appeared in BusinessWeek, The New York Times, Portfolio and Slate, among others.  You can catch her speaking at industry conferences, on CNBC and anywhere financial trouble is brewing.

What it’s good for: footnoted.org’s content takes various different forms from nuggets Michelle has gleaned by combing through financial statements.  Occassionally, it can address some strange quirks like the fact that Warren Buffett’s son relies on ConAgra for his health insurance or how well convicted ex-Tyco managers’ portfolios are doing.  Mostly, Michelle uproots excessive compensation agreements or even worse, company self-dealings which can be a sign of much greater problems under the covers.  Here’s a link to a great article on how important footnotes are in financial statements and how to interpret them.

How to use the site: Try to avoid the next Enron, Worldcom, *fillintheblank*.  For those more aggressive traders, some of the information uncovered on footnoted.org is truly actionable.  In the hypersensitive investing climate we find ourselves in today, trust is not expected, it has to be earned and footnoted.org is definitely a great resource to research the next big blowup.  While most of footnoted.org’s content has traditionally been free, the site has launched a premium pro service for those looking for more in-depth research.  One good trade or avoiding one big fraud pays you back many times over.

Securities Docket:

Who runs it: Securities Docket (SD) is edited by Bruce Carton who is also the author of the SD Insider Column. Bruce is a former Senior Counsel with the SEC’s Division of Enforcement, as well as a former securities litigation partner with a top law firm.  Learn more about Bruce in the short introductory video below:

What it’s good for: Securities Docket digs deep to uncover valuable details in class action suits, SEC probes, and criminal investigations.  Bruce combines a great mix of multimedia including a presence on Twitter (visit him here) and free webcasts including one held this first week of 2009 and an upcoming webcast on the state of the Madoff Scandal.  Also, check out SD’s BlackBook, a compilation of valuable resources in the securities litigation and enforcement fields.

How to use the site: Use the tools to stay up to date on what’s starting to rot under the couch or use it to research existing companies you may have a position in to drill down on your holdings.  This site is particularly useful for those owning stock and part of a class action suit.

10-Q Detective:

Who runs it: David Phillips has more than 25 years’ experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms.  10QD is part of CNET’s BNET set of media properties.

What it’s good for: Like footnoted.org, 10-Q Detective sifts through SEC filings looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges.  David blogs daily and takes his research a step further by putting his findings into context vis-a-vis industry standards or trending, turning facts into small investment thesis like this nugget regarding the aging of US auto fleets and how that might benefit certain firms.

How to use the site: Definitely check the site out daily.  With his background on Wall Street, David crafts his pieces from the perspective of an investor and doesn’t take a short-only bias.  He’s on the lookout for overlooked information contained in financial reports that can help long-term investors owning the stock long as well.

use transcripts for context and nuance in financial communications

use transcripts for context and nuance in financial communications

One last *footnote* of my own: I’ve spoken about the value of financial communications a lot on this site.  I’ve also spoken about the value in quarterly conference calls held by most publicly traded firms.  Not only do you get a chance to hear management spin results, but you also get a chance to ask or hear others asking management touch questions.  It’s these unscripted, free-for-all Q&A sessions that contain boatloads of nuance, body-language and squirming.  SeekingAlpha has an entirely free database of updated transcripts of these calls for thousands of companies.  Definitely put a link to SeekingAlpha’s Transcript Center in your investing toolset along with these other sites.

Survey suggests banks move toward online community model

Just read an interesting article by the guys at Compete.com, the analytics firm.  It’s worth checking out the whole article to see statistically what I think we’ve known for a while: the online banks are doing a good job with functionality.  More and more people are using online banking and those services offered by the banks generally have good uptake for those already doing their banking online.

The above-mentioned blog post chooses to focus, then, on an interesting thesis.  If everything is working so smoothly, then what is really needed is to just get more people using these services.  Compete recommends introducing social networking/community oriented functionality to get those already using the services to educate and recruit new users to online banking sites.

However, perhaps an additional way in which banks can drive trial of online banking functionality is to more aggressively leverage the high satisfaction levels of existing consumers by letting individuals speak to each other in an online community. It is not unprecedented for banks to create an online community around a particular topic area. Bank of America, for instance, created a compelling online community for small business owners. Letting consumers learn from the experiences of others is likely to drive increased trust in the bank and thus impact trial. It will be interesting to monitor the adoption of specific online banking features over time and what banks specifically do to drive trial. — Compete.com

While we speak a lot about introducing community functionality as a stand-alone service, here’s an interesting perspective of community functionality increasing usage of standard online services via education and lowering the bar to increase trialing.

Report shows financial services firms struggling with Investing 2.0

[Hat tip to Barron’s Electronic Investor)

A financial services research firm, Corporate Insight, recently published a  173-page report aptly named, Social Media: Trends and Tactics in the Financial Services Industry (see table of contents here).  While I don’t have a spare $12k to purchase the report (anyone want to comp me?), it appears to be the first full-blowweb2_logosn look on how well (or poorly) the financial industry has taken to web 2.0 technologies and community building.

On the firm’s blog, Corporate Insight summarizes its findings, many of which are familiar to readers of this blog.  Some of the findings:

  • Financial firms have a long way to go: CI likes what Zecco and Quicken have done.  Others seem to be much further in properly adopting social media.
  • Compliance demands continue to hamper social media rollout: Compliance to SEC and FINRA requirements continues to color the way financial firms look at content, especially when it comes to investor-generated content.
  • Gaps in populating networks: Getting account holders to adopt social media practices is proving tough for brokers and other online finance sites. Putting together a cool place to hang out doesn’t work if someone shows up and there’s no party going on.
  • Start small: CI recommends starting small for some of these firms. The firm recommends beginning with a blog and then incrementally layering in other facets of a social media strategy.

I’d love to see how the research firms sizes up these various efforts vis-a-vis what others are doing. If someone has access to this report, ping me and let me know what you think.