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THE GLUCK REPORT, Part I: Farewell to Portfolio 2000

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Ending one of the biggest technology stories to hit the independent advisor market in the last decade, Advent has pulled the plug on its Portfolio 2000 desktop software product. “After careful consideration,” Advent e-mailed users of the software on September 21, “Advent Software, Inc. has decided to end support for Advent/Techfi packaged software products. The affected products are Portfolio, Contact, Trader, WebOffice, Enterprise, Essentials, and any derivatives, accessories, or special versions of these products.”

This saga leaves a trail of tragic endings for everyone involved: Advent is left to appear more shrewd than ever; advisors are left searching once again for an independent open-database portfolio management system that runs on their desktops or local networks; and a 33-year-old multimillionaire is left to enjoy a new life in Las Vegas that is overshadowed by the knowledge that he let down the people who had entrusted and enriched him. Oh–this reporter is left with egg on his face for not anticipating soon enough how an acquisition of TechFi might hurt advisors.

The final chapter in the six-year story needs to be recounted as Advent is in the midst of disseminating a revised version of the TechFi story. Advent is spinning it into a tale of a failed business venture, when, in fact, it appears to actually be a case of a big company buying out a much smaller rival to rid itself of a disruptive competitive threat. Advisors need to know what really happened and Advent customers need to know how the company suppressed a better technology product that threatened its market domination.

I began covering TechFi in December 1998, just a few months after the company was founded. I received a call back then from a co-founder of TechFi, which was operating out of a condo in a Denver suburb. A 27-year-old, self-taught programmer named Matt Abar, who previously worked at a couple of advisor software companies, had locked himself in his apartment for three months and emerged with a new portfolio reporting application. I was intrigued, and asked them to send a copy of the software to me and a few advisors.

I wrote an upbeat review of the software. Portfolio was built on Microsoft SQL–an open database that would allow advisors to easily export and dynamically link portfolio accounting data to software for contact management, charting, financial planning, and other critical chores. The potential for customized integration by advisors who could link Portfolio 2000′s database with their own systems was something no other portfolio management software allowed: not Advent Axys, Schwab’s PortfolioCenter (then called Centerpiece), nor dbCAMS.

In 1998 and 1999, as the Internet bubble was swelling, TechFi fascinated advisors. Abar, who during college chose to stay in his room playing video games rather than attend classes, transformed himself and his company. By 2000, Abar had raised about $200,000 from First Trust of Denver. Then he got $3 million more from Morningstar. Abar, a great technologist, then created a Web-based version of his software, AdvisorMart, in addition to a desktop version. While poor service and software bugs compelled some advisors to abandon TechFi for its more established rivals, hundreds of advisors began to switch to Portfolio and AdvisorMart and, by June 2002, TechFi had 45 employees and 500 clients.

TechFi had struck a chord with advisors who wanted their independence. Portfolio management software (PMS) is the central tool for an RIA. It contains all of your transaction history for all of your clients, all of the tax lot data, and all of your performance history. With both Advent Axys and Schwab Centerpiece built on closed, proprietary databases and owned by publicly held companies with a reputation for throwing their weight around with advisors, the independent upstart, TechFi, offered a solution that allowed independent advisors to keep their client data right where they feel most comfortable with it: in their own offices. TechFi had thus become a competitive threat. It had thrown a monkey wrench into Advent’s and Schwab’s plans to maintain their hold on the central client data application used by independent advisors.

That’s when Advent made its $23 million offer to buy Abar’s four-year old company. Abar took the money, but who could blame him? He stood to make about $12 million. Plus, Advent executives said the company would use TechFi to expand its presence among small advisors and planners. They said it would complement Advent’s strong presence among hedge funds and money managers. Abar, at the time, believed Advent’s promise: “Advent is serious about giving us market segments and building our technology,” Abar said at the time of the June 2002 acquisition. The U.S. Justice Department’s antitrust division also believed Advent; after initially delaying the sale for nearly a month, it allowed the transaction go through.

But less than a year after Advent publicly assured advisors and Abar that it did not buy TechFi only to snuff out its competition, it announced a plan to do exactly that. George Seiters, an executive VP at San Francisco-based Advent, told me in a story published in April 2003 that Advent would kill the desktop version of Portfolio 2000 in 2005. Portfolio 2000 users, said Seiters, would be “migrated” to the Web-based version of Portfolio 2000, known as AdvisorMart.

Advent took its time to kill Portfolio 2000. Maybe it feared the Justice Department would reopen its file. Maybe it feared advisors’ wrath. But on September 21, the 278 remaining advisors using Portfolio 2000 got an email telling them Advent would no longer support licenses or renewals after next June 30.

Advent says advisors can continue to use the product–but they would be unwise to do so because the company will no longer support the custodial interfaces. So, after June 30, if a custodian, such as Schwab, chooses to change its account data feed, by adding a data field for a date, dividends, or some other piece of data, the download could go awry and Advent will not be obliged to fix the interface.

Advent’s Dan Nye says Advent had little choice but to kill TechFi because its business plan crafted back in 2002 has not worked out. Advent, indeed, has had a terrible time. Peter Caswell, Advent’s CEO, was dismissed about 18 months ago and its founder, Stefanie DiMarco, returned to run the company. Much of its management team–the people who engineered the TechFi acquisition–has been replaced, and it is not doing anything to promote a slew of once-vaunted technology products. A partnership with Microsoft to present news and data to advisor clients has ended; an attempt to consolidate client data in Advent Trusted Network has gone nowhere; and the AdvisorMart Institutional reporting system for broker/dealers is not getting any traction or being actively sold among B/Ds I speak with. Advent has reduced its workforce by 10%. Its stock now trades at just under $20, a far cry from an all-time high of $73 in September 2000.

With this backdrop, it does seem believable that the decision to end Portfolio 2000 is attributable, as Advent says, to poor business conditions, along with a realization that its aggressive acquisition strategy–buying up small technology companies and expanding into the financial planner and advisor market–simply was not working. “We tried to run the business and make it work,” says Nye, an executive VP for the investment management business at Advent. “But in 2003, expenses were not aligned with revenues. We cut expenses across the entire company and when looking at this section of the company, we had to make decisions about where we would cut.”

Nye says that it made little sense to continue to invest in developing Portfolio 2000 when it was having great success with Advent Office Essentials, its Axys PMS product sold at a deep introductory discount to advisors with assets under management below $50 million. “Advent Office Essentials is a lot better than Portfolio 2000,” Nye says. “Despite our investment for two years in Portfolio, it is now clear to us that we have a product with high satisfaction rates and that is selling at a much faster clip. The comparison is not even close.”

Dead on Arrival?

But it is clear that Advent never really tried to make a go of Portfolio 2000. It really killed the product within a few months of buying TechFi by telling Abar he no longer had to work in the company, by laying off most of the development and sales staff, by moving TechFi from Denver to San Francisco, and by announcing (in a story I wrote in April 2003) that it intended to kill the desktop product. Who would buy it after that was announced?

Beyond the fact that it has left 278 advisors scrambling to find another PMS solution, the death of TechFi has broad implications for independent advisors because advisors are left with only two well-heeled, established PMS companies, Advent and Schwab. Both are struggling for advisor trust. They have both made attempts to leverage their technology in ways that would make advisors rely more on them and perhaps become totally dependent on them for their portfolio data feeds. Schwab showed its hand when it announced three years ago it would no longer sell its software to advisors who were not Schwab custodial clients–a position it has softened on since. Advent, meanwhile, has interposed its Advent Custodial Data Service in all advisors’ downloads and worried advisors by its actions with TechFi. The uneasy feeling many advisors have about these two companies is going to be hard to change.

Advisors should not be surprised. “It’s standard for software companies to try to lock in their clients’ data into their systems, making the cost of transition to another program high,” says Bill Ramsay, an advisor in Raleigh, North Carolina, who has taught himself programming and uses Portfolio 2000. Ramsay points out that companies like Advent and Schwab are simply pursuing their business goals. Plenty of advisors like Advent and love Axys, but you just need to be aware of where Advent’s goals might affect yours.

Meanwhile, the death of TechFi has also made advisors uncomfortable about trusting any new, innovative PMS company, fearing it, too, will be bought out by a larger company and that the lifeblood of their business will be threatened.This makes it less likely that advisors will ever feel comfortable migrating their portfolio accounting application to a Web-based application. Most advisors don’t like having their data out of their office.

Better Times Ahead

How will the PMS market shake out? My guess is that, over the next couple of years, it could get better for advisors. New PMS companies are bound to rise up. Developing software has become much less expensive, and tools developers use are better. Plus, with Schwab PortfolioCenter now migrating to an open SQL database, it will be much easier to change PMS applications, and Advent cannot resist the trend toward open architecture and will have to follow suit. Gradually, over the next couple of years, two or three new small competitors will become viable alternatives to Advent Axys and Schwab PortfolioCenter. Most established advisors will stick with their Advent and Schwab software, but new advisors will choose the new companies. The fragmented independent advisor market will get some new competitors to Advent and Schwab, and advisors will remain fragmented.

Abar, meanwhile, is spending his time traveling and has transformed himself from awkward tech geek into a wealthy man about town who likes fast cars and motorcycles. He is also taking CFP classes during a “two-year vacation,” and still has another three years left on a non-compete contract with Advent.

In an interview, Abar recently told me that he tried buying back the company. “I sent Stefanie DiMarco an e-mail about a year ago saying I’d be interested in buying back the company,” says Abar. “I never did get a response.” He says that “from a shareholder perspective, TechFi did very well.But from a client perspective, I wish I never would have sold it. I should have done more due diligence on Advent.”

Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (, 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 [email protected]