| 28 September 2009

We find news today that Vanguard Group is close to releasing its first application for the iPhone. This will be the first time a mutual fund company has developed a mobile application for its customers. TIAA-CREF is also said to be launching a mobile application in the near future.

But in this new world of investing, where thoughtful analysis has ostensibly replaced the shoot-from-the hip investing style that dominated the run-up of the latest bull market, we have to ask, are mobile applications really necessary? And worse, could they be dangerous?

First, a short history: banks were among the first financial service firms to give mobile access to customers. Wells Fargo (WFC) was early in the game, developing simple text-based mobile platform available for Web-enabled phones. The company continued to work on its mobile products and currently offers mobile banking, banking by text and its own iPhone application. The applications have improved over time and now customers can check balances, transfer money, pay bills and locate the nearest ATM machine. These services makes sense for customers about to make a large purchase or who need to find cash fast.

Then came the brokers (or more specifically, the online brokers) starting with E*TRADE Financial (ETFC), who decided mobile apps were the next must-have investing toy. E*TRADE's Mobile Pro product was, for a time, the cornerstone of the company's marketing campaign.

Now available for the iPhone and the Blackberry, the product did more than just allow account holders to check balances, quotes, news, charts. A powerful new element was added to these mobile applications that would forever change the active investor's world: trading functionality. Customers could now enter simple, or even sophisticated, trade orders and check on execution anywhere their phone had a connection. The race was on among online brokers to develop competing products and services. Mobile was the hot new investing application.

While most mobile products simply used a browser interface, optionsXpress (OXPS) took the mobile experience a step further, allowing users to download an application for not only the iPhone and the Blackberry but also for Windows Mobile and Android devices. The downloadable application gives access to the more sophisticated tools available to Web or desktop users, such as options chains and "The Dragon," a stock screening tool.

Options broker thinkorswim, now part of TD Ameritrade (AMTD) offers a similar "thinkAnyware" application with built-in trading functionality.

We can understand that there is a bit of me-too behavior incorporated in these product decisions. Trading "bling" drives press releases, and product functionality has proven itself to be a sellable commodity that drives accounts. In fact, we anticipate a number of new product releases in advance of the annual Barron's brokerage report card, issued in October every year.

But there is a big difference between checking in on your accounts, (which is, after all, most of what we use mobile devices for) and actually making -- and executing -- trading decisions. Is it really appropriate to make a buy or sell decision when standing in line at the grocery store? Can you really learn all you need to know about a company, a stock or an option combination on a two-by-three inch display? If you really must make a trade and you can't get to your desktop, can't you just use that thing you're holding in your hand to place a call?

We like bling as much as the next guy and often prattle on about who's phone is better and who's got the coolest trading application; and there's no doubt that the applications are used and used often. We earlier reported that E*TRADE recorded two million log-ins on the Blackberry alone. But studies have shown that trading frequency is negaitively correlated with account profitibabilty.

Despite this, online brokers are often unilaterally focused on developing products that "help" us trade more frequently. This is helpful for brokers and their monthly trading metrics, to be sure, but it's always bad for accounts. We do believe there are some great tools out there that actually benefit investors, but the question is, does anybody really make money trading while standing in line at the grocery store? The answer is: yes, your broker.

Thankfully, smaller niche brokerages such as OptionsHouse and tradeMONSTER have (thus far) steered clear of the mobile game. While larger brokerages like Fidelity and Charles Schwab (SCHW) offer mobile services, they are downplayed at best and customers are encouraged to dial the phone and talk to their adviser.

Most of the information investors need about the markets or even about their own portfolio is readily available in a variety of off-the-shelf mobile applications that you can get from publishers such as Google, Yahoo! and MSN. We would argue that mobile financial tools that encourage frequent checking or shoot-from-the hip decisions aren't appropriate for most investors, especially mutual fund investors.

We just wish someone had told this to the product team at Vanguard before they decided to dedicate resources to a mobile application instead of dedicating those resources to more high-quality, low-priced products.