Chris Snyder is super-wealthy. He is an economist and an entrepreneur, and he hangs out with guys who have helped run Goldman, Sachs, AXA Financial, Chemical Bank, and Chase Manhattan. So when he shows up at my office and tells me he’s come up with a “transformative” technology platform that will allow independent financial advisors to serve the super-wealthy, I have to listen.
Before saying another word, I must disclose a conflict of interest: I love this guy. Snyder, 61, says he is afflicted with “entrepreneur’s disease.” This incurable malady causes him to suffer bouts of anxiety unless he is changing the world, and his condition is also marked by episodes of uncontrollable excitement about his own ideas. Snyder is the first economist I’ve ever met who makes something.
I first bumped into Snyder’s work around 1992 while researching a story for Worth on some newfangled mutual funds being sold as money-market substitutes. The funds were buying illiquid bank debt, and investors could redeem fund shares just once a quarter in a tender offer.
My story, colored by years of covering the burgeoning, scandal-scarred, volatile junk-bond market, warned that a downturn in the economy might result in an unpleasant outcome for investors in these illiquid bank debt funds. Of course, I was wrong. The economy blasted into the long expansion of the 1990s and the bank debt market went on to become more developed and more liquid, so the funds did just fine.
What Your Peers Are Reading
However, what was intriguing about this nascent market was that the managers of these funds priced the bank debt based on information published in a newsletter by a company called Loan Pricing Corp. Collecting a database of bank debt issues and publishing it, this tiny company with the simple name almost single-handedly created a secondary market for bank loans. LPC’s unusual contribution to capitalism made a mark that lasted in my brain.
Scroll forward to December 2002. I get a call from a stranger who tells me he is building a revolutionary new database company that will provide a technology platform for independent financial advisors, and that he has emerged from retirement after selling his previous company, Loan Pricing Corp. It’s Snyder, the guy who 10 years earlier helped create a market for bank loans. He had sold LPC to Reuters in 1994 for $30 million. After telling me his plans, Snyder disappears for two years. In December 2003, he calls me and suggests we meet.
Snyder shows up at my office with one of his investors, who is also a business advisor, Herbert Aspbury, vice chairman of the board of trustees at Villanova University and the former Group Head of Europe, Africa, and Middle East at Chase Manhattan Bank.
Sitting on the couch in my office, Snyder tells me his application is now fully baked. What Snyder has is a portfolio accounting system called PCR Insight. It captures transaction-level data and daily prices on all securities, so it can run reports for any time period on any asset. PCR can household accounts and do a lot of the work performed by applications like Advent Axys or Schwab Centerpiece.
But PCR is very different from other portfolio accounting and performance reporting solutions: It is driven by account aggregation as well direct downloads in batches. PCR can batch-download all of your client accounts from a custodian. But it also can download each client account one at a time using view-only data and screen-scraping techniques generally used by account aggregation companies, not by portfolio accounting systems. PCR is not a shrinkwrapped software solution; everything is custom- made. It is a service bureau built for super-wealthy people and their advisors that combines account aggregation with human intervention to download or manually input daily valuations on alternative investments as well as listed securities.
One of the most compelling reasons to pay attention to PCR is the people backing it. Joe Dionne, the former CEO of The McGraw-Hill Companies, is chairman of PCR. Its roster of backers, who have each ponied up from $50,000 to $500,000 and plan to use the system themselves to manage their own wealth, reads like a Who’s Who in American financial services. But don’t let that impress you too much. After speaking with a couple of these gentlemen, it’s clear to me that they don’t know much about account aggregation, portfolio reporting applications, service bureaus, or where PCR fits into the world of independent advisors. However, they are bankrolling the venture, are intimately familiar with the problems of the super-wealthy, and they do know the right people to open doors for PCR.
Despite all this, I’m not going to pretend to know if Chris Snyder’s business will succeed. What he wants to do is complicated, and it serves an exclusive but limited number of firms. Although there are no direct competitors now, you’d think that an aggregation company, a portfolio reporting software firm, or an entrepreneurial-minded family office operation would step into this niche.
However, Snyder’s venture into the intriguing world of the super-wealthy and the advisors who serve them provides a glimpse into how account aggregation could be used in the days ahead to drive portfolio accounting and performance reporting applications. Today’s technology for the super-wealthy is tomorrow’s tool for the mass affluent–and the next day’s tool for the self-directed.
Moreover, PCR raises practice management issues about how independent advisors can best serve the rarified market of the super-wealthy and whether more advisors should try to compete against trust companies and private banks to get business from these people. Also, it’s just plain fun to examine how advisors can make the world safer for people with so much money they can’t keep track of it.
PCR’s Unique Approach
Snyder says he and Joe Dionne were looking for a wealth management system to meet their needs when they got the idea for PCR. “Joe and I didn’t set out to found a business,” he says. “We set out to get this done for ourselves.”
The only company that got close to offering what he and Dionne wanted was myCFO.com, which had exactly the same mission as PCR has now adopted when it surfaced in 1999 and made a splash with advisors. In October 2002, myCFO was purchased by Chicago-based Harris Private Bank, a subsidiary of Toronto’s BMO Financial Group, as a proprietary wealth management system. The founder of myCFO, Netscape founder Jim Clark, sold “certain assets” of myCFO to Harris for $30 million, reportedly just one-third of the $90 million raised to start the operation. Snyder says myCFO lost focus by getting into the brokerage business and selling insurance.
After months of frustration at not being able to find a solution for managing their own wealth, Dionne and Snyder started their venture. Snyder says PCR’s focus is clear: to be the authority on data in the high-wealth market.
That means creating a technology platform to collect data for the super-wealthy and their advisors, and it also means harvesting the data and publishing studies that will be shared with PCR clients and, most interestingly, sold to financial product manufacturers, luxury goods makers, and other interested in marketing to this clientele.
PCR is an odd duck. It’s not a technology company, but an information company. Thinking of PCR as just a replacement for a portfolio accounting system is a mistake because PCR does not include portfolio management or trading functionality.
Advisors use portfolio accounting systems only to consolidate assets they manage or consult on. PCR provides accounting on client assets that an advisor does not manage or consult on as well as assets that you do manage. However, PCR gives you the added flexibility to restrict reports solely to assets you manage, or to break out the assets managed elsewhere.
Also, PCR’s database has been structured from the start to record liabilities as well as assets, which means insurance policies, home mortgages, business loans, and other debts can also be figured into a client’s balance sheet. Moreover, PCR accounts for alternative investments. This is a critical component of the service it offers advisors, and is a curious part of company’s business model.
Acting as a service bureau by gathering prices daily or monthly for illiquid assets–hedge funds, private equity deals, and other alternatives–is time-consuming, labor-intensive, and messy, and getting it right is difficult. PCR aims to be expert at that.
“Advent does a good job pulling data in, but the challenge is in reconciling the data,” says Snyder. “For normal things like a Schwab or Fidelity account, the error rate is pretty low–although you occasionally could miss a reorganization or a stock split. But the world of high-wealth transactions is far messier. It’s not at all unusual for a wealthy person to have five or six custodians, 15 money managers, and a long list of investments in oil and gas ventures, hedge funds, and more complicated enterprises.”
Decamillionaires and–this gives me a chance to coin the following terms–double-decamillionaires and triple-decamillionaires invest differently from the mass affluent, Snyder says. So they have different reporting needs from the mass affluent with net worths of $5 million or less. For instance, the average person on PCR Insight, who is worth $30 million, allocates about 30% of his wealth to listed stocks, 10% to 12% to fixed income, and a whopping 22% to alternatives.
Here’s an actual alternative-investment issue that comes up for the super-wealthy. “Say you were going to invest in my friend Jerry’s hospice rollup project,” says Snyder. “Jerry has raised $60 million from wealthy people to buy mom-and-pop hospices. He did the same thing with graveyards a while back.
“First, he starts just with a commitment, which is recorded in PCR as a liability on the investor’s balance sheet while he finds the hospices to buy,” explains Snyder. “Four months later, Jerry asks each investor to send $500,000 because he just bought three hospices. When that transaction occurs, that liability on our system becomes an asset representing equity ownership in that hospice deal.”