Data & Research January 15, 2009

And the Award for Best Online Calculator Goes to…

Research from Corporate Insight graded do-it-yourself retirement-planning calculator tools offered by brokerage firms to assist investors.
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Fidelity, TD Ameritrade, and Vanguard all scored A’s.

Although calculators are sometimes criticized for oversimplifying the retirement needs of Americans, they have also become helpful tools for many investors to understand how much they need in retirement. Corporate Insight, a consultant to the retail financial services industry, said given the uncertainty of today’s economy, it is important for self-directed investors to take a hands-on approach in planning for retirement.

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The firm looked at calculators and multi-step planning tools offered on the sites of brokerage firms. Corporate Insight determined the accessibility, complexity, and usability of the online calculators, according to a press release. Of the firms surveyed, 70% (or 14 firms) met the criteria by offering some form of retirement planning tool.

Fidelity earned an A+ from Corporate Insight for its comprehensive retirement planner, the release said. TD Ameritrade (A), Vanguard (A-), Charles Schwab (B+), and E*Trade Financial (B) also scored high marks for their do-it-yourself planners.

Corporate Insight found that four firms (Charles Schwab, Fidelity, TD Ameritrade, and Vanguard) automatically import the client’s actual account value into their retirement planning tools, allowing the client to skip over manual data entry. After clients have calculated their future finances, Fidelity, Charles Schwab, and E*Trade Financial offer solutions and suggestions for next steps on how to make retirement goals realities.

However, the majority of firms (64%) surveyed offer only basic calculators and lack the benefits of multi-step planning tools, according to the results. Thirty-six percent of firms offer a comprehensive retirement planner that: computes the client’s current retirement needs; predicts the future values of current holdings; and tailors a plan of action to the client’s goals and finances.

 

Corporate Insight recommends the following:

  •  Place tools in prominent, easily accessible Web site locations.
  • Allow clients to save information and continue later.


Products January 15, 2009

MUTUALdecision Launches Tool to Rank Mutual Fund Managers

MUTUALdecision, an online source for predictive mutual fund models, launched a tool enabling investors and financial advisers to rank U.S. mutual funds based on academic research.
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The Judging Fund Managers Model is the site’s third online tool enabling investors and advisers to rank mutual funds, according to a press release.

The model is based on an academic paper that finds fund managers who use similar techniques are likely to make similar investment decisions and deliver similar performance in the future, the release said. The risk-adjusted returns of top decile funds in this model outperform the bottom decile by at least 5.9%. By utilizing MUTUALdecision’s online tool, investors and professional advisers can rate mutual funds based on this predictive academic model.

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“On the heels of 2008’s market performance—where no mutual fund category was spared from significant, across the board percentage declines—traditional methods for evaluating top funds based on past performance become less reliable,” said George Comer, chief academic officer at MUTUALdecision and associate professor of finance at Georgetown University, in the release. “The Judging Fund Managers Model is unique in that it evaluates each fund manager’s skill by the extent to which his or her investment decisions resemble those of other managers with distinguished past performance records, arming investors with predictive information about future fund returns.”

The academic paper “Judging Fund Managers by the Company they Keep,” published in the Journal of Finance and authored by Randolph Cohen (Harvard Business School), Joshua Coval (Harvard Business School), and Lubos Pastor (University of Chicago), introduced two new performance evaluation measures to judge a fund manager’s skill compared to top performing funds: the extent to which a manager’s portfolio holdings overlap with holdings of other managers and the overlap of changes to portfolio holdings, according to the release.

The company said it launched the Return Gap Model and the Active Share Model in November. The Return Gap Model analyzes the difference between a fund’s actual return and the return it would have earned by following a buy and hold strategy. The Active Share Model measures the extent to which a mutual fund’s portfolio holdings differ from the portfolio’s benchmark index.

 

 

All academic models are available for free during a two-week trial for those who sign up, after which site visitors can access all hosted academic models and site tools through a monthly ($9.95), quarterly ($23.85), or annual ($71.40) subscription. More information is available at www.MUTUALdecision.com.

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