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.
If you ask people who work on the Web what Web 2.0
is, you are likely to get different answers, depending on their job. A
programmer told me Web 2.0 is the use of Ajax, a relatively new
programming language now coming into vogue that combines Asynchronous
Javascript with XML to create interactive Web pages. A graphic designer
told me it was a new standard for developing sites. An advisor told me
it was the growing use of blogs. It's reminiscent of the six blind men
who each touch different parts of an elephant. One touches the tusks
and says the elephant is like a spear, another touches the trunk and
says the elephant is like a snake, and so on. In this case, the beast
is so large and multifaceted-the World Wide Web 2.0-that it, too,
defies any single definition and is experienced in different ways.
In an article published in September 2005, Tim
O'Reilly illustrated differences between Web 1.0 and 2.0, as shown in
Figure 1.
Social Networks
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.
Collective Intelligence
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.)
Tagging
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.