Rollbacks on financial advice?

DETROIT — Wal-Mart Stores Inc. is taking another crack at expanding its financial services business by partnering with a discount- brokerage platform that potentially could move the world’s largest retailer closer to the financial advice business. The partnership between Bentonville, Ark.-based Wal-Mart and ShareBuilder Corp. of Bellevue, Wash., comes on the heels of a decision in March by Wal-Mart to abandon its efforts to expand into the banking business. “They’ve been smacked on the nose by not being able to start a bank, and this is another way of getting a foot in the door,” said George Morvis, chief executive of Financial Shares Corp., a Hinsdale, Ill.-based consulting firm. “It looks like they’re showing people that you can be a regular common Joe and still have access to these kinds of brokerage services,” he added. Wal-Mart has provided only limited details about its plans to push discount-brokerage services to millions of customers at its 4,000 U.S. stores. Although the retailer is promoting the new service, Wal-Mart Easy Investing by ShareBuilder, on its website, it won’t begin actively marketing the partnership for another two to six weeks. In an e-mail response, Wal-Mart spokesman Alfredo Padilla said that the program offers basic investing tools with low barriers to entry. Despite the good intentions of trying to encourage saving and investing, this could mean introducing problems for that particular market segment, according to Jeff Broadhurst, owner of Broadhurst Financial Advisors Inc. in Landsdale, Pa. “Without a fiduciary adviser, it’s just more noise that could lead to overly concentrated risk,” he said. “ShareBuilder is going to have an agenda, because if they’re not charging a fee for advice, they’re being compensated somehow.” Indeed, access without advice could be worse than no access at all, according to Lois A. Vitt, a Middleburg, Va.-based financial sociologist. “I love what Wal-Mart is trying to do by being more relevant to its customers,” she said. “But I’m concerned that something like this might turn some people into day traders.” Ms. Vitt is co-author, along with Karen L. Murrell, of the book “You and Your Money: A No Stress Guide to Becoming Financially Fit” (FT Press, 2007). “We aren’t born with the ability to make sound investment decisions,” Ms. Vitt added. “That’s why we need guidance, especially at a level where money is limited.” Wal-Mart is feeding its financial services ambition on another front. The mega-retailer also is getting ready to launch a so-called prepaid-payment card, a move intended to appeal to customers who don’t have bank accounts, according to published reports last week. As part of that effort, Wal-Mart is partnering with Fairfield, Conn.-based General Electric Co.’s consumer finance unit and Visa USA Inc. in Foster City, Calif., according to those reports. The moves come months after Wal-Mart yanked its application for a charter to operate an industrial-loan company due to opposition from community-banker groups who maintained that it was the first step to operating full-service banks within its stores. ShareBuilder, an online brokerage platform, describes its partnership with Wal-Mart as a means of helping Americans at the lowest rung of the economic ladder to start saving and investing. The partnership, which was unveiled April 27, offers low-fee and low-minimum-investment access to money market funds, stocks, exchange traded funds, margin loans and options trading. “We are really geared toward novice investors and those people who have been ignored by traditional brokerage firms,” said Stephan Roche, a vice president at ShareBuilder. The ShareBuilder platform doesn’t include an advice component beyond helping investors determine their risk tolerance and making asset allocation models available. “This is no way is a threat to advisers, because our customers are starting at zero and growing from there,” Mr. Roche said. “Ideally, our customers will eventually outgrow the ShareBuilder program and start looking for advisers to help them out.” In spite of the balancing act between offering access and possibly steering less sophisticated consumers toward high-risk investment strategies, it is a viable service, according to Bert Whitehead, president of Cambridge Connection Inc. in Franklin, Mich. “I think a lot of advisers might see something like this as a threat, but I don’t,” he said. “I think supply helps build demand, and I think something like this is ideal for Wal-Mart’s customers.” Mr. Whitehead added that if properly presented, providing easy access to a discount-brokerage platform could give Wal-Mart customers and employees a “great opportunity to save some money.” In terms of receiving any kind of financial advice, he explained that consumers at the lower-income levels “are only going to end up talking with insurance brokers.” From ShareBuilder’s perspective, the partnership is a golden opportunity to leverage Wal-Mart’s brand and customer base. “We think the potential market is enormous when you consider [that] Wal-Mart’s customer base is essentially the U.S. population,” Mr. Roche said. Privately held ShareBuilder refused to provide details related to its market share beyond saying that it has established more than 250 distribution partnerships during the past seven years. The idea of partnering with mass market retailers even makes sense to ShareBuilder competitor FOLIOfn Inc. of Vienna, Va. “Retail chains like Wal-Mart are obviously becoming more holistic providers of goods and services, and we are absolutely opening our eyes to those types of opportunities,” said Greg Vigrass, president of FOLIOfn’s institutional business.