Editor-At-Large, Investment Advisor
Two firms that are dominant in the independent advisor market–and which advisors often say they mistrust–received a court judgment this week that appears to be a victory for independent advisors and the way they prefer to do business.
Advent Software, Inc. lost its power play against Charles Schwab & Company when a California Superior Court judge issued a preliminary injunction on January 14 ordering Advent to continue to support its download interface with Schwab for at least 90 days. The judge also ordered Advent not to interfere with Schwab’s effort to create its own download interface or with any other third party’s effort to do so.
“For a court to enter a preliminary injunction against Advent,” says Nick Georgis, VP of sales at Schwab Institutional, “it had to think that we were likely to win the suit on its merits.”
The immediate effect of the order handed down in San Francisco by Superior Court Judge James J. MacBride is to force Advent to give its customers support through April 14 for an add-on to its popular portfolio management software, Axys. The add-on allows advisors using Axys who custody client assets at Schwab to download their client data.
Schwab had argued in court papers filed in December that Advent violated a December 1997 marketing agreement by failing to inform Schwab within 90 days that it was changing their agreement by switching advisors to a proprietary Advent interface called Advent Custodial Data service (ACD) and terminating the existing point-to-point download interface. That interface is used by advisors to download their portfolio data from Schwab and other custodial firms. While the judge did not make a final ruling on all aspects of Schwab’s lawsuit, the strong language in the preliminary injunction leaves little doubt that the court agreed with Schwab. The judge enjoined and restrained Advent from “Interfering in any way and at any time, whether by legal means, technical means, or other means, with Schwab’s development, distribution and use of a replacement interface for the Existing Interface.”
What’s It Mean?
The court’s ruling could have much broader implications beyond the Advent-Schwab relationship. It could free other custodians to develop their own interface with Advent, and deal a setback to Advent’s plan to gain a mass migration of advisors to ACD. Such a migration would place Advent in a more pivotal position in its relationship with advisors, allowing Advent to interpose itself in the daily data downloads from custodians that are the lifeblood of an investment advisor’s practice.
With the point-to-point interface, an advisor uses a piece of software that allows Advent portfolio management software to “talk to” a custodial firm’s back-office mainframe computer. The interface that resides locally on your computer and that Advent charges $750 a year to support uses an encrypted Internet connection to download the data.