Mutual fund companies were roundly criticized after the Internet bubble burst in 2000 for failing to prevent Baby Boomers from putting all their eggs in risky stocks that quickly lost market value. Large retirement plan providers like Vanguard have since invested in Internet-based asset allocation programs, such as Morningstars Clear Future, designed to help the millions of 401(k) investors who are not working with financial advisors from making the same mistake.
In addition, Vanguard has taken a step to bypass individual investors who are often prone to ignoring financial planning applications by taking the new system directly to 401(k) sponsors. In the best-case scenario, Vanguard and Financial Engines hope plan sponsors will use their authority to automatically enroll their 401(k) participants in the new advice system. "Many employees participating in their workplace savings plan lack the time, motivation, or expertise needed to manage their portfolios effectively," said F. William McNabb, a managing director at Vanguard
Internet-based asset allocation systems fell off radar screens of mutual fund companies during the past bear market and subsequent epidemic of investment scandals, but the technology has since resurfaced after a few recent quarters of strong market performance. Vanguards new online retirement system, formally known as The Vanguard Managed Account Program, offers quarterly automatic account rebalancing and online customer service support for investors who prefer working with human representatives instead of computer-generated advice programs. Fees for the new application begin at 0.40% of each participants assets a cost that exceeds annual expenses charged by some Vanguard funds and drops to 0.10% in plans with more assets under management.