Web 2.0 is the new Internet, and it will change your practice.
While subtle to most everyone except the digerati,
the Internet is different. Web 2.0, the term being use to describe the
new version of the Internet, is spreading across the World Wide Web,
and it is sure to change the way you use the Web in your practice.
According to Wikipedia, the free online encyclopedia that is itself an example of the new Internet, the term Web 2.0 was first coined in 2004 by O'Reilly Media, a publisher of information about innovative technology. Tim O'Reilly, the firm's founder, is said to have used the term at a brainstorming session to describe emergent technology after the tech bubble burst.
In an article published in September 2005, Tim O'Reilly illustrated differences between Web 1.0 and 2.0, as shown in Figure 1.
One of the main improvements over Web 1.0 is that Web 2.0 empowers users to generate content. In fact, Web 2.0 is best known to most people because of an offshoot of this driving concept: social networks.
If you have children, then you probably have heard about Facebook.com and MySpace.com. These sites are social networks, where kids generate their own content. My son, Jason, 13, let me use his log in once (and only once) to view my 15-year-old daughter's profile on Facebook.com. Alison's profile page contains a bio she wrote about herself, what she likes and dislikes, and scores of photos of her with her friends. What's significant is that Alison did not post the photos; her friends did. And when they post photos, they are able to not just caption them but also to map the names of the people into each photo as hypertext. So the names of the people in the photos appear as you roll your mouse over their images. Because Alison listed her friends on her facebook page and they listed her as a friend on their pages, pictures where Alison is identified show up on Alison's page. Since my daughter has a couple of hundred friends, she shows up in hundreds of photos with friends.
That's an example of the power of Web 2.0. It's people making content. I can click on any of Alison's friends and see their profiles and the photos they have posted or their friends have posted with them. Groups can be formed ad hoc. So before my daughter left for a four-month program to study abroad, she knew almost every one of the 60 kids from around the country who were also attending the program because they formed a group on Facebook. Bringing kids together because they go to the same school, camp or hang out in the same places is a compelling feature of Web 2.0.
But arguably the most important feature of Web 2.0 is the democratization of information. Web 2.0 harnesses collective intelligence. It empowers the wisdom of crowds.
The intellectual underpinnings sometimes are attributed to James Surowiecki's 2004 book, The Wisdom Of Crowds (Random House, 2004) in which the author, a staff financial writer at The New Yorker, argues that "crowds of all sorts were often remarkably wise." Surowiecki, after studying the behavior of markets, has examined the wisdom derived from group-think and, contrary to the long-held notion that the crowd is always wrong, has concluded that crowds can often be quite prescient.
Surowiecki is not blithely saying crowds are always right, and recognizes that, when people pay too much attention to each other's opinions, it can cause stock market bubbles like we saw at the turn of the century. Instead he argues that crowds comprised of independent thinkers who form their own opinions have better-informed opinions and are smarter than individual experts, who have, by definition, limited perspective. Surowiecki, in a Q&A about his book, addresses how some of his ideas conflict with the classic book about markets and group-think, Charles MacKay's Extraordinary Popular Delusions And The Madness of Crowds.
"He (MacKay) would probably think I'm deluded," says Surowiecki. "MacKay thought crowds were doomed to excess and foolishness, and that only individuals could produce intelligent decisions. On the other hand, a good chunk of my book is about how crowds can, as it were, go mad, and what allows them to succumb to delusions. Mackay would like those chapters.
"I think the most important lesson is not to rely on the wisdom of one or two experts or leaders when making difficult decisions. That doesn't mean that expertise is irrelevant, or that we don't need smart people. It just means that together all of us know more than any one of us does."
Web 2.0 is a tool that implements the wisdom of crowds. The implications for society are unfathomable. Just consider one small application of this feature of Web 2.0 on your little corner of the world as an independent financial advisor.
Go to Yahoo.com and do a search in the Yahoo Yellow Pages for "financial advisor." Your search result will yield a list of financial advisors and next to each firm's name is a link to "Write A Review." If you are not logged in to Yahoo!, you will be invited to log in and express your opinion about the advisory firms in your search result. "Let others learn from your experience. Share your advice and opinions with millions of Yahoo! users." The Yahoo shot below shows that you can not only write a textual review about the firm, but you can also rate the firm using a five-star system. (I didn't know the firm that randomly came up first in my search results, but gave them a four-star rating anyway.)
Perhaps the best applications tapping the collective intelligence of crowds are tagging sites. My favorite is del.icio.us. I am hooked on this one. The concept honestly took me an hour or so to grasp but ever since I "got it" I've been tagging away.
A tag is a public favorite. Just as you might "Add A Favorite" Web site in Microsoft Internet Explorer so that you would be able to easily navigate to that site later, you can tag a site. But the big difference is that your tags are public and so is everyone else's. del.icio.us is one giant database of everyone's favorites on the Web.
To use del.icio.us, you download a toolbar that installs itself in Internet Explorer. When you come across a site you find useful, you tag it. And so does everyone else that has downloaded the del.icio.us toolbar. It is a way of finding out what the mass of people on the Web are finding most useful, entertaining and interesting. It harnesses collective wisdom.
Del.icio.us let's you see the most tagged sites on the web, listing what is most popular and what sites were recently tagged by other del.icio.us users. One of the features of tagging sites like del.icio.us is a "tag cloud," which can be seen in the screen shot on this page.
A tag cloud graphically displays which topics on the Web are most popular by enlarging the type size of the most popular tags. The red tags are the ones you share with everyone else, meaning you have tagged sites using those terms. (Okay, I admit it. I did click on the "porn" tag once, but only in the interest of research on your behalf.)
del.icio.us is one many tagging sites, but it was one of the first. Other notable "social bookmarking" sites include digg.com and technorati.com, which is a tagging application for blogs. When you read an article, listen to a podcast or view a video, you will often see a button to "diggit" or tag it on one of these social boomarking sites.
So far these tagging sites are mostly being used by the digerati, the elite of the computer industry-programmers, designers and others in the digital workforce. But increasingly tagging will be used by all of us because it is more intelligent than search engines for some types of research.
The Power Of Blogs
While Web 2.0 is tapping the power of collective intelligence, it is also empowering individuals as never before. The power of Web 2.0 is also seen in blogs. Blogs have been around for years, of course, but in Web 2.0 they have new influence. It used to be that we all relied on journalists for reliable information about events and issues. Now, bloggers with no training in journalism, and often no interest in being objective and telling all sides of a story, are empowered as never before.
Just look at how blogging is affecting the political process nowadays. At the Scooter Libby trial, for the first time ever bloggers were given press credentials. The perjury trial of Libby, the former chief of staff of Vice President Dick Cheney, marked "a courthouse coming of age," according to a front-page story on February 15 in The New York Times. It was the first federal case in which official press credentials were given to individuals who identified themselves as independent bloggers. Reminiscent of the yellow journalism from a century ago, a collection of liberal bloggers from firedoglake.com offered intensive trial coverage.
How does this affect you as a financial advisor? I went to Google and searched its blogs for "financial advisors." Within a couple clicks from a blog, I arrived at a Web site called amexsux.com, which bills itself as "The Unofficial American Express and American Express Financial Advisors consumer opinion site." The site was reportedly started in September 2001 by John Westphal, a consumer unhappy with the way he was treated by an Amex advisor, and in August 2002 was named as one of the top corporate complaint sites by Forbes. One day soon perhaps all of us will have a site devoted to exposing why we suck.
Two technology giants trying to make headway in the registered investment advisor market are about to announce the integration of their applications. Sungard has integrated its Web-based Planning Station financial planning application with Albridge Solutions' online portfolio reporting application.
Albridge is the dominant portfolio accounting system among independent broker-dealers and their reps, with more than 100 B-Ds using its system. Albridge has a small presence among RIAs, with only about 50 firms licensing its application, but in recent months it began to actively market to RIAs.
Sungard is perhaps the largest financial technology company in the world, and says 1,500 RIAs license Planning Station. For Sungard, tapping Albridge's data warehouse as a feed into its software makes a lot of sense. Few independent B-Ds use Sungard Planning Station, but more broker-dealers may now allow their reps to use Planning Station because of its new capabilities resulting from Sungard's alliance with Albridge.
The integration is a high profile sign of the times. Web-based software products are increasingly integrating using Web Services. With a Web service, one application can call up data of another application. In this case, Albridge made available an Application Programming Interface to Sungard. According to Troy Hirschi, the product manager for Planning Station, the integration took less than a week of programming time because it is taking advantage of Web Services.
"It used to take months and months, and we had to do data mapping between our product and a back-end product and then you had to write the services to communicate with each other," says Hirschi. "What we've done now with Albridge took about 50 hours, and that includes the testing, programming and verification."
The screen shot at left shows all of the data elements on a portfolio holding that can be imported from Albridge into Planning Station. Hirschi said that the first release of the integration interface would import data one client at a time. A release scheduled for September will permit imports of data multiple clients. Hirschi said that the integration does not yet permit import of the cost basis of a security but that this problem was being addressed.
Hirschi said the integration would remain an import, at least for now, and not automatically update plans in Planning Station because updating the data dynamically could cause confusion. If a client's plan changes significantly after portfolio data is updated automatically in a plan, the advisor may be caught off guard. For instance, if a client sells a position without first talking to his advisor, the plan may be affected before the advisor has had time to examine the implications of the portfolio change.
The data is imported from Albridge into using XML (Extensible Mark-up Language), a standard programming language for transferring data n the Web. When the data is transferred, an advisor can characterize it for use in Planning Station.
In the screen shot above, the interface for characterizing accounts is shown. Albridge does not tag an account as a 401(k) or IRA. It simply knows it is tax-deferred. So Sungard has created an interface for tagging each account for use in a plan. In fact, one option is to not include an account in a plan-for instance, you would not want to use 529 College Savings Plan assets in a retirement plan forecast.
Hirschi says B-Ds using Planning Station and Albridge will be able to also use the integration without much difficulty. He cited Raymond James Financial as an example of an independent B-D that could take advantage of the integration. However, Sungard does not have extensive penetration with independent B-Ds.
Hirschi said RIAs using Planning Station and Albridge would pay no additional fee for the integration.
Planning station (reviewed in this column last May) is a modular planning application that allows an advisor to create a simple plan for prospects in about 30 minutes, but the plan can be upgraded to a full blown comprehensive plan if the client requires it. The software is both goal-based planning and creating cash-flow-driven plans. Licensing all Planning Station modules cost about $2,600 a year. Albridge, which is now making a push to enter the RIA market, saves advisors the hassle of downloading data by doing all downloads for you. But cost remains Albridge's greatest challenge, with annual fees of about $50,000 a year for a firm with $200 million under management.
Andrew Gluck, a longtime writer and journalist, is CEO of Advisor Products Inc., a Westbury, N.Y., marketing company serving 1,500 advisory firms.