From the November 2003 issue of Investment Advisor • Subscribe!

New Kids In Town

Two portfolio management software providers up the ante

When it comes to portfolio management and performance reporting, many independent advisors can only wish for new choices. Now, they are getting their wish. Over the last year, several new entrants have been working to roll out products for independents, and these products are finally coming to market. One of the new players is Investment Advisory Network.

The Englewood, Colorado-based company was founded in 1993 as a wrap account provider. In 1997, IAN shifted focus toward reselling the technology platform it had built for distributing its wrap product. In 2001, IAN migrated its technology to the Web, and its metamorphosis into a full-blown technology provider is now complete.

IAN's business nowadays is providing portfolio management, accounting, and performance reporting software and services for a mutual fund wrap program offered by Bank of New York, and a fund wrap and separate account manager program offered by Dreyfus Investment Services and Frank Russell Company. Now, IAN wants to leverage its technology platform by opening it up to RIAs.

To evaluate IAN, seven seasoned advisors from established RIAs participated in a 75-minute demo by IAN's operations chief, Michael Winnick, and sales director, Doug Moses. The consensus opinion: IAN could be a serious new contender in the PMS category.

Greg Friedman, an advisor in San Francisco who designed Junxure-i, a customer relations management software program for advisors, says IAN's tax lot reporting is as good as any he's seen in a PMS application. Lou Stanasolovich, president of Pittsburgh's Legend Financial Advisors, says IAN's application is a "giant first step."

"This is an independent organization and could be another player for RIAs," says Stanasolovich. "They have a business history and major institutions as clients, and some cash behind them, so they're credible."

While all of the advisors who saw the demo say IAN's technology has the potential to serve RIAs, they also say it needs some work. The graphics in reports are not very snazzy, and it's not clear how IAN will work with an advisor who wants to actively make changes daily in his database. Still, IAN's Web-based PMS application is only months away from being truly competitive with Advent Axys or Schwab Centerpiece.

Tom Connelly, of Keats Connelly & Associates in Phoenix, noted that switching to IAN would require additional training and entail the other hassles of a software conversion. And while Connelly noted that his tour was limited, "as an Advent user, I did not see additional capabilities that would entice me away right now, and the price is not incentive enough."

IAN has succeeded in customizing reports used by its big institutional clients. Customizing reports for hundreds of RIAs is more difficult, but can be done by IAN if it decides it would be good business. Winnick says the company is determined to serve RIAs, and he proved it.

During the conference call and Web demo, Winnick quoted prices to the seven advisors who participated. They did not like the prices. Stanasolovich, for instance, told Winnick that the pricing he described would be double what he now pays.

Winnick welcomed the feedback. In fact, he later told me he wanted to invite the seven advisors to join an advisory panel that could help IAN get things right. Moreover, in a subsequent conversation, Winnick, after talking it over with other IAN executives, restructured RIA pricing.

Winnick says IAN's online reporting solution for custom reports with custom benchmarks will cost $40 a year per account, with a minimum of $8,000 a year for 200 accounts. Each additional account beyond 200 carries a $40 a year charge up to a maximum of $17,500 for up to 1,000 accounts. A one-time fee of $5,000 is applied for creating your custom benchmarks, custom reports, and a custom-branded log-in Web site page where your clients will see their statements, and an additional fee of $3,000 annually is levied for hosting a custom site. The pricing is competitive.

For instance, Greg Friedman has 100 clients with about 500 accounts. IAN would cost him $17,500, plus the $3,000 a year hosting fee. "Right now, I have someone doing downloads and handling portfolio reporting in Centerpiece and I have to pay her about $50,000 in total compensation and it takes about 75% of her time to maintain the database," says Friedman. "If she would only spend only 10% or even 25% of her time on maintaining the database, that would free her up to allow us to provide other services."

Friedman says other outsource vendors with proprietary platforms base their prices on the amount of assets you manage. He welcomed the flat-rate pricing from IAN. "They have my attention," he says.

Curt Weil, president of Weil Capital Management in San Francisco, says he currently pays an average of $1,050 a month to an outsource firm to download data on his 600 accounts daily from three custodians and SEI Investments, and another $100 a month for securities pricing. Add to that the annual licensing fees for Centerpiece of $2,550 for five licenses and it comes to $16,350 a year, which is slightly less than what IAN would charge.

"I'm not going to switch but my interest is piqued," says Weil.

At this point, IAN has good technology and its pricing is in the ballpark. IAN may be the first new PMS application in several years that could give Advent and Centerpiece a run for their money.

Which brings us to the other new competitor in the PMS category: Optima Technologies. Optima's software actually can do much more than portfolio reporting. Atlanta-based Optima's product, called Interactive Advisory Software (IAS), draws on one database to handle portfolio accounting and reporting, financial planning, and customer relationship management. It's an integrated software application for doing just about everything advisors need to run their businesses.

In the January 2003 issue of Investment Advisor, I said it would "take at least a year, and probably two, before planners and broker/dealers in meaningful numbers will want to switch their offices to IAS." A year has passed, and Herzl Hyton, Optima's CEO, says I was right, and that conversion from other PMS programs into IAS has proven to be more difficult than expected. However, it seems like Optima is finally about to make inroads. H&R Block Financial Advisors signed a deal to make IAS available to its 1,000 advisors at more than 500 offices. "Despite significant investments in R&D," Hyton says, "IAS will generate positive cash flows for 2003."

With IAS now splitting its software to offer a trimmed-down version of just PMS and CRM and not financial planning, and a partnership with BOSS, a third-party portfolio accounting service bureau, IAS is much closer now to becoming another viable alternative to Axys and Centerpiece.

Your choices are getting better.

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