In the late 1990s, when online trading transactions became a major force in the financial services business, fear was rampant that online discount brokers-which were, ironically, the companies RIAs relied on for conducting business-would automate advice and advisors would become less and less important. It didn't happen.

Online trading grew dramatically and did cut into some advisor business. But wealthy investors have continued to seek advice. Moreover, RIAs and independent advisors have been hurt far less by the trend toward self-directed online trading than full-service Wall Street brokerages have because they offer more personal service and professional advice than brokers. So while online investing has continued to grow quickly-the number of online trades at Schwab more than doubled in the ten years ended in 2009, despite two bear markets-the independent advisor business has nonetheless continued to grow as well.
Still, Internet investing has evolved in ways no one could have imagined even five years ago, and social network investing could make it even more popular.

I asked Cowles if Mosaic was concerned that Covestor would wind up being a competitor.

"We're financial planners and not just investment managers," says Cowles. "Plus, Covestor is serving a different marketplace. I cannot imagine someone doing this with a $1 million or $2 million portfolio." Cowles says there are too many compromises, such as the investments that can be made and the fact that you cannot manage a portfolio for taxes.

I suggested that a Covestor sub-advisor could create a tax-managed portfolio, and I asked Cowles again if he was worried that Covestor could wind up competing with him. "It's possible, and it is a risk," Cowles concedes, "but isn't that a better reason to figure out how to participate?"

"We don't see that as a real risk, but if the industry evolves that way, and if investment management is commoditized, then a financial planning firm would offer planning with no investment implementation, and people might go to Covestor for investment management," Cowles says. "If that's how the market evolves, we want to be there. We cannot make it go away by pretending it's not there."

Editor-at-large Andrew Gluck, a veteran financial writer, owns Advisor Products Inc., a marketing technology company serving 1,800 advisory firms.

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