From the November 2007 issue of Investment Advisor • Subscribe!

November 1, 2007

Give Them What They Want

Understanding they can't offer every tool to every advisor, custodians are nevertheless making sure to remain flexible enough to meet advisors' ever changing demands

Brian Stimpfl has no delusions that TD Ameritrade can provide every possible technology solution to all of its customers. On the other hand, Stimpfl knows if his client can't integrate what they consider best of breed with the company's custodial platform, they'll take their business elsewhere. "We are not a wirehouse with a captive group of advisors, able to say, 'Our way or the highway,'" says the Omaha-based company's managing director of business solutions. "And you're not going to be able to do everything on the same standard of excellence. "If you try to do it all yourself, you're destined to be mediocre."

And mediocre, says Stimpfl, is just not in the plans. Now with TD Ameritrade's recent acquisition of the Brookfield, Wisconsin-based Fiserv's custodial business [Ed. note: the deal, announced in May 2007, is expected to close by December] the firm should feel the right to swagger a bit. After all, folding in Fiserv's $28 billion in clients assets, TD Ameritrade's pot is expected to swell to more than $100 billion in assets--not exactly small potatoes.

Still, Stimpfl's attitude mirrors that of the other custodians--Fidelity, Schwab, and Pershing--that staying on top of new trends and demands from investment advisors is better than resting on laurels. Custodians are adding rebalancing calculators, automatically pre-populated forms, and self-service tools to make sure platforms stay open enough to work with any tool an advisor could want. "We know we must keep our ears open," he says. "We need to stay flexible to all 5,000 of our advisors."

With several different feedback chains--from an advisor panel that meets quarterly, to an operational panel that solicits ideas from back office staff--TD Ameritrade believes in constantly retuning its product with direct from the field opinions.

Currently, portfolio rebalancing seems to be in the greatest demand. While TD Ameritrade released its first group of new rebalancing tools to Veo, its account management and trading platform in 2006, a second phase with new add-ons came in October, allowing advisors to set what the company calls tolerance levels that automatically flag users when balances have fallen outside certain percentages.

Included in this release will be tools that allow advisors to rebalance cash coming into the account, without having to retool the entire portfolio. There's also a cash bumper option, where a certain amount, or percentage of the portfolio, can remain liquid rather than transferred into securities.

TD Ameritrade acquired software firm, iRebal, at the end of 2006, which Stimpfl says helped the firm boost its ability to offer better rebalancing capabilities to advisors who handle accounts in excess of $300 million.

The firm is also rolling out more FIX, or Financial Information eXchange, protocols, which support real-time exchange of securities transactions. It's a standard that more and more advisors are demanding in the field, says Hilary Fiorella, VP of marketing with the electronic financial services firm CheckFree, which runs focus groups with its advisor clients and provides some of that feedback to custodians. "True to form some custodians are different than others and if they don't support FIX, then intraday trading information is not available to them until the end of the day," she says.

Adding more self-service tools to its platform is another focus for the firm, from offering the ability to request a wire or check online through Veo as well as over the phone, and also making sure it opens up access to as much data as it can, such as information about investors' dividends. It's all in the name of finding the most resourceful way to help its customers help clients--and increase profitability for both advisors and itself. "We want to put anything on Veo that will allow them to connect directly to TD Ameritrade rather than have to call us," says Stimpfl. "From a technology perspective, we always view our platform as a tool that, if we work efficiently, we can leverage to help increase profits for our advisors."

Courting High-Net-Worth Clients

Pershing likes to think of itself as a custodian that can work with almost any advisor and that its overall product is pretty well-rounded. "Most people could run their business, from soup to nuts, on our platform, especially breakaway advisors," says Trent Witthoeft, vice president, technology strategy with Pershing Advisor Solutions. Still, as Witthoeft knows well, advisors want what clients want. And if there's a tool that can help them with, say, an investor's interest in hedge funds--they're going to want to use it, and expect their custodian to be able to support it.

So Pershing has focused new attention and upgrades to its platform for advisors who work with ultra-high-net worth clients, who might need a specialized tool or two that can help them trade in these kinds of investments. Along these lines, Pershing is adding more international trading tools, says Witthoeft. "An increasingly large part of our business has been to invest in these international capabilities." The firm is putting extra effort into understanding the complex rules and regulations that govern the different world markets, to make sure these trades can close correctly.

Even with its focus on the high-net-worth advisory business, Pershing hasn't missed the rebalancing trend sweeping through the field. The firm upgraded its NetExchange Advisor to allow for tax optimizing rebalancing, as well as an enhanced feature for tax-aware rebalancing, which Witthoeft says will give advisors a heads-up about potential tax impacts.

Fixed income demands from baby boomers are also pushing the custodian. "Boomers are driving a lot of our technology concerns," he says. The goal for Pershing, says Witthoeft, is to make sure its advisors are best informed on options, like annuities, as many have grown up, along with their clients, in the wealth accumulation phase and are highly skewed towards equities. "In this later phase of life, you need to look at different instruments," he says.

The company is also moving full steam ahead on communication tools it plans to rollout in the first quarter of 2008. On deck? More e-mail capability, along with alerts that will be pushed out to advisors' desktops to let them know certain operations like trades or money transfers have been completed. "Now advisors have to log directly into their 'work corner' to check various tasks," says Witthoeft. "Here we're taking out that need to navigate away and drive operational efficiency into the firm."

Also up for the first half of 2008, is an e-signature option so a client can just go online, click, and electronically sign documents making the process paperless, faster and infinitely more efficient. "We see advisors relying more on custodians for this back office work so they can spend more time on client relations," says Witthoeft. "Instead of trying to hire a good office person, which can be difficult, they can bring that worry to us, and we get it done."

Streamlining the Back Office

Fidelity Institutional Wealth Services Business' Gary Gallagher echoes Pershing's Witthoeft when he says that the two areas he sees driving changes to custodian's technology platforms are increased sophistication among wealth management practices, and advisors asking for more help in getting their back offices under control.

Fidelity's angle is to not create everything from the bottom-up, but to forge relationships with tech firms that they believe already offer the best in breed in everything from customer relationship management tools to financial planning platforms. "We're going to be courting to provide and integrate the best in the market in a streamlined way," says Gallagher, senior vice president of product management with the Boston-based firm.

Fidelity announced relationships with both EISI's NaviPlan and Oracle's Siebel CRM earlier this spring, says Gallagher, with plans to integrate them into its custodial platform with new capabilities by the end of 2007.

However the firm is still at work to fine-tune its own in-house offerings, and holds regular focus groups with a portion of its 3,500 advisory base, and meetings with other companies, like WebEx, for example, says Ed O'Brien, the firm's senior vice president of technology product management. From this feedback, Fidelity honed its platform earlier this year to offer more wealth management tools to advisors whose clients hold alternative investments, allowing additional views of this data from asset class to positions. "This is a fast growing focus," Gallagher says.

The firm also beefed up its managed accounts views with a unified management account offering that allows advisors to look across multiple households at once and make allocation decisions more efficiently. "While this has been used in other areas, it hadn't been widely adopted in the custodian space," Gallagher notes.

But it's upgrades in the back-office area that Fidelity is most keen to broadcast to its customers. Growth in any advisory firm is a reason to celebrate. But inevitably, this adds more demand on the housekeeping side of a practice. With more accounts opening, comes more paperwork. With more paperwork, there's more data to reconcile and follow, and more tasks to complete. "Businesses process more accounts, but often expand without adding staff and resources," says Gallagher. "Looking forward we want to help them better manage their practice."

Fidelity has poured additional resources into service, launching more automated and online tools that streamline the back office. One new add is an account application that pre-populates fields, minimizing manual entry demands on advisors and support staff. The company has also created an alert system, that tells an advisor by e-mail when asset transfers have completed. "Now they don't even have to pick up the phone," he says.

The firm is also supports electronic service requests, giving its customers a tracking number, and an expectation of when their task will be completed. "We're very excited about the access we offer our advisors, and how we drive efficiency," says Gallagher.

The Hands-On Guys

Advisors still often need a real person who can not only tell them what hardware and software they need, but help translate the advisor's business needs into a complete technological answer.

Schwab Institutional's consulting group has watched and tracked both business growth and technology demands since launching the service in 2000, says Dan Skiles, vice president of technology at Schwab Institutional. The company works with 1,000 clients a year, according to Skiles, with many rotating year after year and needing perhaps just a little tune-up once in a while.

From its consulting work with clients, Schwab compiles each year what it considers a comprehensive white-paper. The most current report focuses on everything from contact management solutions to the current trend of building a paperless office. "We've gleaned from them that they're growing at 20-25%, and they want to invest in technology so they can continue to grow," says Skiles. "They're very interested in getting away from paper files."

With that in mind, Schwab has launched a variety of tools to help automate many of the processes advisors go through in maintaining and launching new accounts, as well as trying to help them reduce the number of tasks they have to do during the average day.

One new feature is an online account wizard that pre-fills data into fields, and if a client already has accounts with Schwab Institutional, those portfolios can be mined for data which is then pulled into the new forms. Advisors are even given an account number at the end of the process.

Rebalancing being a constant theme this year among custodians, Schwab is no exception. When money is deposited into an account, or a trade executed, the portfolio is now rebalanced in real-time. "So if a client calls an advisor and says, 'I just sold my house, and $75,000 is being wired to Schwab right now,' that rebalancing will occur automatically," says Skiles. Before, an advisor had to purchase an outside product or create the new percentages in Excel. "We've removed that burden and now made it available to them on the Web site," he says.

Skiles says that Schwab also has plans to cut more virtual windows into its platform so that customers can view additional data. "Advisors want to have more access to the information a custodian stores," he says. So while an advisor can currently follow a cashiering request online, such as a wire request from Schwab to a bank account, next year the firm is going to give advisors the ability to view transfer requests too, so they can follow where the shares are in transit, and get a completion date.

"Will we offer more automated services? Where it makes sense," says Skiles, who boasts that the online cashiering service has been a resounding success with 50% of customers adopting the tool. "But we don't want them to have to go through training every time we launch something new. These should be intuitive tools.

"It's all about open architecture and being able to interface with the best they need," says Skiles. "It's not appropriate that one system would fill every need for all advisors. After all, should all people drive a minivan? It's the same thing."


Lauren Barack is a New York-based freelance business writer who specializes in stories on technology, finance, and parenting. She can be reached at lbarack@earthlink.net.

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