This column marks the start of my eighth year writing for Investment Advisor. I am proud but humbled that we’ve never been asked to publish a factual correction to my approximately 500 stories. The privilege to share my ideas with you is not something I take lightly, and I pledge to continue to give you straight facts and intelligent analysis.
But enough about me.
Charles Schwab announced in early July that it is postponing its long-awaited portfolio reporting service bureau (PRSB). Service bureaus figure to be an important alternative for registered investment advisors to outsource portfolio accounting, and Schwab Institutional is the largest provider of custodial and technology services to RIAs. While the decision sounds like a bad thing, it’s actually not. So let’s look closer.
Schwab’s service bureau is delayed because the company has not completed a reengineering of its portfolio management software product, Centerpiece. Schwab said 23 months ago that it would release a next-generation, open-architecture version of Centerpiece in early 2003. Schwab also said in that September 30, 2002, press release that it was changing the name of Centerpiece to Schwab PortfolioCenter, and changing the name of its subsidiary that licenses Centerpiece from Performance Technologies Inc. to Schwab Performance Technologies.
Schwab’s marketing plans were well ahead of its software development. Though the company’s Web site markets PortfolioCenter, the software is not yet available. With the project to reengineer Centerpiece into PortfolioCenter delayed, Schwab has had to postpone the launch of its outsourced performance accounting solution.
Schwab is reengineering Centerpiece to run on a Microsoft SQL database. An SQL database will be more stable and scalable than the current database Centerpiece runs on. Unlike that database, SQL offers open database connectivity (ODBC), which makes it easier to integrate your portfolio management software with financial planning, customer relations management, and other software programs central to running an RIA business. Schwab’s Web-based service bureau for portfolio reporting would also be more stable and scalable on an SQL-based portfolio accounting software. For a competitive outsource service bureau to get off the ground, in fact, the SQL migration needs to be completed.
In a July 8 letter to customers, Deb McWhinney, Schwab Institutional’s president, said she was “fully committed to delivering the full system in early 2004.” The redesign of Centerpiece was “more complex than originally anticipated,” she said, describing it as a “massive undertaking–not unlike the conversion from DOS to Windows in the personal computing industry–and involves rewriting over 3.5 million lines of code.” A Schwab spokesman says that while Centerpiece users would like to see the SQL version launched tomorrow, they are being “patient and understanding.”
This clears up any doubts as to what was happening with the SQL project. I had begun to wonder if the project was technologically so daunting or if Schwab had been slow to roll out an SQL version because putting its portfolio management system on an ODBC-compliant backbone would make it much easier for RIAs to quit using Schwab’s system and move their data into another system. In fact, while McWhinney’s July 8 letter focused on the service bureau being delayed, the real news is that Schwab is delaying that effort because it wants to focus resources on the reengineering SQL project.
For years, the two portfolio management applications most RIAs use–Advent Axys and Schwab PC–have relied on databases that were not ODBC-compliant. The programs, which hold the lifeblood account information of an RIA practice and are used by about 7,000 advisory firms, both rely on “closed” databases that make it difficult to pull out data cleanly, especially if you have years of historic account information.
That’s why it was such a big deal when in December 1998 Portfolio 2000 came on the scene. It challenged the standard-bearers by relying on an open SQL database. Its purchase by Advent for $25 million in June 2002, however, along with a recent announcement by Advent that it would stop supporting the desktop version of Portfolio 2000 in January 2005, means the end of a desktop version of this open-database system. Advent says it will migrate the 300 or so Portfolio 2000 users to a Web-based version, but a lot of RIAs prefer to run portfolio reporting software on their desktop.