John Spence

New Foliofn Tool Allows Advisors to Design and Subscribe Custom Stock Baskets

Most individual investors are at least familiar with online brokers that allow them to design or purchase ready-made baskets of securities. However, one player, Foliofn, is expanding its services to advisors and money managers. The Virginia-based company launched a new portfolio investing and management tool that enables advisory and money management firms to create, publish, and manage stock portfolio models for advisor use.

"For the first time, advisory firms and individual advisors who track stocks and portfolios can increase their efficiency - and increase their business - by subscribing clients to whole model folios instead of manually recreating the same portfolios in different client accounts," said James Vitalie, president of Foliofn Institutional.

Advisory firms can use the tool to put together basic stock models and private-label them for advisor use. Advisors can then distribute the proprietary models to clients.

Foliofn's tool makes the process of setting up separately-managed accounts more efficient "by automating routine tasks and paperwork and by providing real time data access," said Vitalie. Advisors can rebalance and update the folios as often as they like at no cost. Also, the tool has automatic features that allow advisors to exclude certain stocks and manage clients' tax liabilities according to investor preferences.

"Our products were initially designed for retail use," says Steven Cohen, VP of marketing at Foliofn. "Now, we're tailoring folios to meet the needs of advisors. The new tool allows advisors to efficiently package stock models for separately-managed accounts, which are currently the fastest-growing investment vehicles in the market."

Foliofn's launch comes on the heels of an announcement last week that index provider Standard & Poor's (S&P) will design custom style and sector stock baskets for online broker E*Trade. As folios continue to gain recognition, two questions have resurfaced that have swirled around these innovative investment vehicles since their inception. First, are folios a threat to traditional mutual funds?

"I don't think so," says Gavin Quill, research analyst at Financial Research Corporation (FRC). "They're more likely to take away business from individual stock trading and other brokerage platforms."

However, Foliofn's Cohen believes the tax awareness of folios may cause some mutual fund investors to switch over. Tax efficiency is also a major selling point for another investment vehicle that has come to the forefront recently: the exchange-traded fund.

Additionally, some in the industry, most notably trade group Investment Company Institute (ICI), have called on the Securities and Exchange Commission (SEC) to regulate folios like mutual funds. But Quill believes the SEC will allow folios to be traded as brokerage tools.

"The SEC has had plenty of time before now to shut them down, and most of its comments thus far [regarding folios] have been positive," says Quill. "Of course, there is the potential to go overboard with folios, and I'm sure there are abuses that can be conceived of - but I think these things are legit."

It should also be noted that Foliofn's founder and CEO, Steven Wallman, previously served as a commissioner for the SEC.

However, Morningstar analyst Scott Berry isn't entirely sold yet. "Anytime you start recommending stock, the SEC's ears prick up," said Berry.