From the January 2005 issue of Investment Advisor • Subscribe!

January 1, 2005

THE GLUCK REPORT, Part I: Advent's Big Challenge

It's No. 1 in portfolio management systems for advisors. But its 1980s technology is now an issue

With nearly 800 employees, a $672 million market capitalization, and a stock that trades at 4.4 times its trailing 12-month revenues, Advent Software is by far the biggest of all the companies selling portfolio management software (PMS) to independent advisors. It dwarfs the competition. But unless Advent changes, it could lose its dominance.

The technology driving PMS systems has completely changed over the last five years, while Advent's software has basically remained the same. Advent's portfolio management reporting and accounting program, Axys, is powerful, proven, and accurate. But it was built on 1980s technology, using a proprietary database.

In the '80s, you would write your own code programming your database. Today, however, database programming is standardized around products like Microsoft SQL and Oracle. To program an SQL database, developers use tools that make software coding easier, faster, and less costly. While all the code behind Advent must be written in its own proprietary scripting language that only Advent developers and a small cadre of consultants know, SQL database programmers have wizards and components they can plug into their code to make programming much easier.

Advent Axys's archaic back end presents real limitations to advisory firms. To integrate Advent with a customer relationship management program, trading module, and other programs, you must know Advent's programming language, or buy Advent's pricey companion modules. By contrast, with an SQL database you can get directly to the underlying tables if you know how to use them, and the data tags are not cryptic proprietary terms that are known only to a small group of technologists.

Any good database programmer can make an open-database PMS system link dynamically to other applications like your CRM system, or create custom reports and merge your PMS system data into Microsoft Office documents. While engaging a database programmer to write a script that pipes in data from an SQL-based PMS system would be very doable, there is a very limited number of programmers that you could hire to do this with Advent Axys because it requires intimate knowledge of Advent's complex database structure.

This is not to diminish Axys' strengths. In a Web tour of Axys that Advent hosted for a group of about 10 advisors I convened, the benefits of the application were evident: elegant-looking reports, a time-tested calculation engine, and clean interfaces with more than 400 brokerages, custodians, and institutions.

Axys offers more than 200 different performance and management reports. Schwab, by contrast, says its PMS software offers only 40 interfaces and 102 performance and management reports. Another PMS system popular with advisors, dbCAMS, offers 200 interfaces and 61 reports (a review of Schwab's system and dbCAMS's appeared in my December 2004 column in Investment Advisor). Axys handles all types of tax lot accounting and management options--LIFO, FIFO, and average, actual, highest, or lowest cost--and is targeted at money management firms with $5 million to $100 billion under management. In addition, with 3,800 customers, 21 years in business, and a customer base that would find it difficult to convert their data and defect to another program, Advent is unlikely to go out of business or suffer from business risk that could hobble smaller, newer competitors.

But Will Advisors Buy Brand X?

Despite Axys's many strengths, new advisory firms are likely to consider alternatives before signing up with Advent. Its failure to change the guts of its program is likely to allow small, innovative companies an opening. Other programs will give an advisory firm more flexibility, a better price, or a more user-friendly interface.

For advisory firms that want to create custom reports, custom screen views, and dynamically link PMS data into mail merge documents, or use their PMS data in ways custom-tailored to their business process, Advent has limitations compared to more modern systems.

Say you want to integrate some of your Advent Axys data into your CRM system. CRM programs made for financial advisors, such as Junxure, ProTracker, or other systems built on SQL or another open database connectivity-compliant (ODBC) database, allow you to easily import data from an open-architecture PMS system. However, moving data from Axys into an ODBC-compliant CRM system such as Junxure is a two-step process. You must run a report in Advent, which produces an Excel spreadsheet, and then import that spreadsheet into Junxure using a utility. In contrast, with a PMS system that is built on SQL or any other ODBC-compliant database, the import is a one-step process.

In addition, an industrious advisor who is using an ODBC-compliant PMS system could create his or her own simple CRM system. Such a system could merge quarterly data from the PMS system with a form letter to clients. Billing and other core business functions could also be tailored to fit an advisor's way of doing business. An advisor with a technical bent could do all this himself, but it is probably more practical to hire a programmer. And you could get a mail merge form letter, billing, and other basic functions programmed for $1,000 or $2,000. While this would not be nearly as broad an application as a shrink-wrapped CRM system, like ProTracker or Junxure, it would give a firm core CRM functionality. Since advisors all have their own ways of running their businesses, this flexibility is important.

The Scoop on Qube

Advent does sell Qube, a CRM system that is integrated with Axys, but Kathleen Golden, an Advent spokeswoman, declined to provide its price. So we asked around. Two sources familiar with Advent pricing said that Qube costs $7,500 for a three-user license, $10,000 for six users, and $15,000 for 10 users. The minimum annual license and support fee is $1,500 for three users, according to one of the sources. This is "tier one" pricing for firms with under $1.5 billion. Tier two pricing for larger firms is higher. However, Qube can use all of the PMS system's data because it is meant to run with Axys.

For Axys itself, Advent offers steep price discounts for smaller firms under a program called Advent Office Essentials (AOE). Those with less than $50 million in assets under management pay a first-year license fee of $4,000 and an annual license fee of $2,000 thereafter. Advisors with $50 million to $100 million pay a first-year license fee of $10,000 and an annual fee of $6,000. Beyond the first license, additional seats cost $1,000 a year for firms with less than $50 million under management, and $2,500 per seat per year for firms with $50 million to $100 million under management. Firms with more than $100 million in assets under management pay higher prices, but Advent declined to disclose them.

Firms taking advantage of AOE's discounted pricing should consider the cost of Qube, and its trading module, Moxy. Since Advent's database is a collection of many individual text files, each one representing a single account, it's difficult to create a custom-programmed CRM or trading system or integrate non-Advent products with Axys.

Advent's strategy is to make it compelling for advisors to buy the entire suite of Advent products when their businesses grow. Moving to another PMS package would be costly and disruptive. For advisors who exceed the $100 million asset level, Advent's suite becomes compelling rather than facing the hassle and costs of a PMS conversion, despite the high cost of the Advent suite.

Larger firms and those that are sophisticated about using their PMS data often like to have the flexibility to create their own views of their data. For instance, say your firm wants to view a list of accounts by customer name and asset values, Social Security numbers, and e-mail addresses. In Advent, you would have to run a report to get at that data. With an SQL database product, you could essentially create your own interface to see that view of your data all the time. You could use Microsoft Access or Excel to dynamically access your PMS database, and the data would be fed live into that user interface without any exporting or importing.

Not being able to program your own screen view in Advent is a limitation, given Axys' interface. Axys does not let you see your accounts and drill down into your database on-screen.

Like Schwab PortfolioCenter, you must run reports to go deep into your data. (While PortfolioCenter is now in the process of converting users to an SQL database, the new version of the software being rolled out through next October does not contain any interface enhancements and has the same report-based approach as Axys for exposing your client portfolio data.)

Drilling Down

Open databases are more easily programmed to let you drill down from the household to the individual account level, and then down to the transaction level. Advisors who have used SQL systems such as Portfolio 2000 say this feature is critical because advisors must be able to navigate their accounts instantly without running reports when clients are on the phone asking questions.

Advent, which works with many large money managers, may feel less pressure to provide this kind of interface enhancement because many of its big clients are run by principals who do not actually run their own PMS system. When these managers want to see client data, they ask an assistant to run a report and look at a printout.

While Advent has a dominant market position, its proprietary database platform could weaken sales to new advisory firms that will opt instead for a new generation of SQL-based PMS products. Advisors are unlikely to buy a proprietary database system that requires Advent's high-priced in-house consultants to customize reports and perform other customization when they can buy a cheaper system that can be more easily customized and has a better interface. Advent must find a way to move to an open-architecture database but not cannibalize the big chunk of its revenues that are generated for consulting and customizing its products.

At its recent annual conference for users in Boston, Advent officials said they plan to test an SQL-based product, called NexGen, in 2005. Spokeswoman Golden declined to comment on the new product, but individuals who attended the conference and Advent user group sessions touching on its release say that Advent executives have spoken about NexGen as a new product and not an upgrade to Axys.

At a recent Advent user group meeting, according to an attendee, Advent said it expected the new SQL product would be targeted to its largest clients and that it expects a large majority of Axys users would not make the switch to the new SQL product, leading most Advent-watchers to conclude that it would be expensive to move from Axys to NexGen.

Advent's strategy of leaving most of its users on a PMS system that relies on an outmoded database technology is risky. The ease of coding complex database programs has changed the landscape in portfolio reporting software. The first hint of it came in 1999, when TechFi released SQL-based Portfolio 2000. Advent bought TechFi in 2002 and recently said it would stop supporting its desktop and local-network products this June. But other open-architecture PMS programs are beginning to pop up.

PowerBroker: Priced Right

For example, PowerBroker, from Cornerstone Revolutions in Portland, Oregon, is built on an SQL database and has all the benefits of open architecture. PowerBroker includes 53 performance and management reports, as well as interfaces to Ameritrade, Fidelity, Rydex, Schwab, LPL Financial, and Pershing at no additional cost. While there is no custom report writer currently in the program, Cornerstone Revolutions says it will develop custom reports for its users.

PowerBroker is priced right: The first-year license is $1,500 and maintenance in the first year and each subsequent year is $750. An additional license is $400 per seat per year. That's a fraction of the cost of Advent Axys, dbCAMS, or Schwab PortfolioCenter, three rival desktop/networkable PMS applications.

After a 90-minute Web demo for about 10 advisors who are actively in the market for PMS software or considering switching systems, seven filled out an online survey that I created asking them about their impressions. Asked to rate their overall satisfaction from one to 10, with 10 the best, one advisor rated PowerBroker a 2, four called it a 7, one rated it a 3 and one gave it an 8. After a similar demo, Advent Axys' ratings looked like this: one rated it a 3, one gave it a 4, one a 5, and one a 6. Three rated Axys as a 7, and two gave it an 8. Many of the same advisors are attending a series of demos I've put together on Schwab PortfolioCenter, dbCAMS, Advisors Assistant, and other PMS applications, so these are informed opinions. While the number of respondents is tiny and far from scientific, what is significant is that the advisors evaluated tiny upstart PowerBroker's features favorably when compared with the well-established Axys.

"I would not use the software (PowerBroker)," says John Carey, of JP Wealth Management in North Massapequa, New York, which manages about $140 million. "I'm comfortable with a mature PMS package and this would be a step backwards. But for a new advisor the flexibility and lowers costs make this an interesting package." Steve Wershing, of AM&M in Rochester, New York, which manages $700 million, rated PowerBroker a 7. "The ability to customize the labels for assets is good and the standard reports look good," Wershing noted.

Before getting too enthusiastic about PowerBroker, advisors must understand that it's far from perfect and that Cornerstone Revolutions is a startup. The company has just 11 employees, is working with eight advisory firms, and has only 10 licensees for its software.

On the positive side, having almost no customers means the software can be changed rapidly without inconveniencing a large user group. Version 1.0 is about to get an upgrade to 1.5 in early January, and Cornerstone promises improvements including batch printing of reports, the ability to add your logo to any report, modeling asset allocations, and rebalancing alerts.

Risks Ahead?

The technical challenges to Cornerstone are formidable. What is even more uncertain is how Cornerstone might handle business risks. What if the company gathers 500 clients, like TechFi did several years ago, and is then purchased? What if management loses its focus on a high-end desktop and networkable application and instead decides to focus on a Web-based enterprise version for broker/dealers? What of the customer service issues that come with success? Despite these risks, the competition is good for all advisors. New advisors would be wise to consider PowerBroker, and established firms may want to consider converting their data into the program once it gets 100 or 200 users. You can expect it to be more innovative than any of the other PMS systems because of its small staff and easy-to-live-with SQL back end.

Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (www.advisorproducts.com), which creates client newsletters and Web sites for advisors. Advisor Products may compete or do business with companies mentioned in this column. He can be reached at agluck@advisorproducts.com.
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