If the global economic recession has taught us anything it is that there is no crystal ball that could have predicted the rollercoaster ride of the stock market over the last few years. The lesson many investors have learned is that their financial advisors can’t beat the market and therefore are no more worthwhile than a simple computer program.

Enter MarketRiders, a web-based investment advisory service that allows individual investors to type in their age, time horizon, investment experience and risk tolerance and sit back as a computer algorithm analyzes it and tells them what to buy and sell. Alerts will be sent when it’s time to rebalance. The cost: $9.99 per month.

“There’s not a lot of hocus pocus to this,” Mitchell Tuchman, the founder of MarketRiders and a former hedge fund manager, says. “Financial advisors and Wall Street want you to think there is a lot of magic to investing, which is how they justify siphoning off a third of your returns every year, but it’s just not that complicated.” The difference: Most financial advisors use very expensive software to come up with recommendations for their clients; MarketRiders software is consumer friendly.
 
The biggest problem investors have is not what advice they get, it’s the cost of the advice, Tuchman says. “A financial advisor can be like having a business partner that is cutting into a third of your profits forever. They want to take a needle, stick it in your vein and siphon off your money year after year. It’s unnecessary and it kills peoples’ portfolio.”
 
For example, an investor’s long-term return on bonds averages about 5%; on equities 10%, Tuchman says. If you have half your portfolio in each your average rate of return is 7.5%. A traditional financial advisor, like Merrill Lynch or Charles Schwab, charges 1% every year to figure out an asset allocation and give you financial advice, with another 1.5% added on to place your money into actively chartered mutual funds. That’s 2.5% in fees, or nearly one third of your hard-earned cash.

MarketRiders is staking a claim in the web-based advisory space at a time when more investors are moving from traditional financial advisors to discount online brokers. A study released Monday by Aite Group revealed the threat that online brokers are posing to financial advisors. The report said that discount brokers have taken 25% more assets from advisory companies than advisory companies have taken from them in the last two years.

MarketRiders is taking the idea of a discount, online broker one step further, by shifting the paradigm to a do-it-yourself computer program model. Unlike E-Trade’s Online Advisor platform, which uses an algorithm to figure out an investor’s asset allocation and then refers them to a team of online advisors who review and select different investments, MarketRiders’ is completely self-directed. This is critical for many investors who have lost trust in their advisors since the start of the recession when it became clear that they couldn’t outperform the averages.

Yet while web-based advisory services will beat traditional advisors every time on price, Doug Dannemiller, a senior analyst at Aite Group, says it’s the benefit side of the evaluation on which advisors thrive. “When you’re facing divorce and emotionally distraught, those are the sorts of things that a professional relationship can guide you through,” he says. “And a professional can convince you to take action when you might not be inclined to do so.”
 
Dannemiller says that online brokers have given professional advisors a run for their money. While technology like that of MarketRiders continues to advance, professional advisors are seeing the bar for the value of their advice continue to get higher.
 
But Dannemiller believes there’s a place in the market for web-based, do-it-yourself advice as well as professional advisors. The truth is a lot of consumers are not do-it-yourselfers. “They’re do-it-yourself with some of their portfolio and pay for advice with other accounts. I think there’s space in the market for a full spectrum of cost levels.”
 
For those investors, E-Trade offers two options: Online Advisor, which requires a minimum investment of $10,000 to $250,000 and charges advisory fees starting at 0.5% of portfolio value; and a self-directed portfolio, which requires no minimum investment, and you only pay for trading fees. Tina Martineau, a spokesperson for E-Trade, said that the company has seen a trend in disenchanted investors who have moved from full-service investment firms to online because they want to take a more active role in managing their investments.
 
TD Ameritrade also offers a similar software system called Amerivest, which is an advisory service that tailors a diversified portfolio according to your investing goals, risk tolerance, time frame and budget. Amerivest requires a $25,000 minimum, and has annual fees that start at 0.75% of the first $100,000.