Broker/dealers want to be able, for compliance reasons, to monitor how reps invest client funds. They also want to exert control over them for business reasons. So Web-based portfolio management systems (PMS) have been embraced by large institutions. RIAs, however, have been far less enthusiastic about Web-based PMS. Many of these stubbornly independent business owners don’t like having their data reside away from their office. But that’s not stopping Albridge Solutions and Interactive Advisory Software from pursuing RIAs. We tried out their latest offerings.
Formerly known as StatementOne, Albridge is the dominant PMS provider to independent B/Ds and their reps, with 85 institutions, more than $500 billion in assets, and 40 million accounts riding on its software. Albridge’s application does almost everything an advisor could ask for. It has direct interfaces with 1,100 institutions, by far the largest number of interfaces of any PMS provider. Advent comes a distant second with 400. Albridge uses those interfaces to pull down data from all your custodians, B/Ds, and insurance companies. It normalizes the data and scrubs it for you. So you don’t do your own reconciliation. It does it for you. The company has a patent-pending reconciliation technology aimed at eliminating the need for the advisor to devote any time or staff to daily portfolio management. Indeed, Albridge’s data scrubbing is probably as good, if not better, than any other Web-based application service provider. It uses artificial intelligence to figure out the reason a position in your portfolio might be out of balance with data coming from your custodian or brokerage.
There will always be some data that Albridge cannot figure out, however. In those instances, Albridge essentially forces the issue by creating a “plug” that reconciles the imbalance. Albridge does not give an advisor the ability to change his data himself. Instead the plug is inserted and the advisor can see in a reconciliation report that a plug was put in place. Within two or three days, when new data are downloaded, the plug usually goes away because the problem position gets fixed usually by the institution. If not, it can be manually fixed by Albridge or by a phone call from the advisor to Albridge’s service desk explaining how to change the database to eliminate the problem.
Clean and Easy
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The Albridge interface is clean and easy to use. For instance, creating custom benchmarks using 45 indexes is intuitive. The program has 23 reports. Six contain graphics, and the reports do look elegant. However, Albridge concedes that the ability to customize reports–for instance, changing the time periods covered by a report–is limited.
You can easily generate a batch of reports and e-mail them to your clients en masse, with a link to see their individual reports. In addition, you can automate batch reporting and e-mailing to occur every month or every quarter. The reports can also be printed out as PDFs in batches for mailing to clients. Setting up your billing system is simple and flexible, and you can use an unlimited number of fee schedules. In addition, Albridge has done an exemplary job of dealing with the trust issue–making an RIA feel comfortable about leaving his data on a third party Web server. An RIA can download all of this data to a spreadsheet every day. It’s simple.
Where Albridge may fall short with many RIAs is in tax lot management. Albridge supports first-in-first-out, last-in-first-out, and average cost tax accounting. But it does not support accounting for the actual lots you buy. So it won’t let you sell securities based on whether they are the highest or lowest cost lots in a client’s portfolio, or allow you to specify the lots you wish to sell. Advisors who must have this feature will have to wait till the fourth quarter of 2005, when Albridge is expected to add it.
The biggest obstacle to Albridge’s success with RIAs, however, is likely to be its pricing.
Three advisors who participated in Albridge’s Web demo submitted details about their practice to get a price from Albridge. For Dean Giella, a sole practitioner with $20 million under management spread among 50 clients and 150 accounts, a setup fee of $5,000 to $10,000, and a $3,000 conversion fee would be the cost for moving his data into Albridge from Portfolio 2000. He would also have to pay the annual minimum of $15,000, which includes access to all the interfaces he needs.
When you consider that Giella would be freeing himself of daily PMS responsibilities because Albridge will be downloading and reconciling his data daily, paying an extra $12,000 might not be a tough sale. For larger advisory firms, however, the annual fee can be much higher. For a firm with three advisors who would need licenses, 219 clients, and 540 accounts, and $214 million under management, the setup fee would be $15,000 to $20,000 and the annual charge would be $90,000. That costs seems high when you look at the alternative: using a desktop application and hiring someone to scrub the data daily. Low-priced dbCAMS will cost $4,695 for a startup fee and $1,950 annually, and Schwab PortfolioCenter would cost $11,650 ($10,650 if you’re a Schwab client) and $3,450 annually. While it is true that you must still do all your downloads, you can hire a staffer for $30,000 or $40,000 a year to reconcile the data daily, which might take an hour or so each day, and do other administrative tasks the rest of the day. Even if you bought the most expensive desktop PMS software–Advent Axys–you would still wind up saving money by doing manual downloads and using an application that runs on your desktop or local network.
For Curt Weil, whose firm in Palo Alto, California, has three advisors and $95 million under management, spread among 145 clients with 350 accounts, Albridge’s estimated price of $47,000 annually was jarring. “That is almost 5% of my revenue,” says Weil. “They have made my decision very easy fuhggedaboudit!”
My guess is that Albridge is going to fix the tax lot accounting deficiency over the next year or two and slash its pricing to RIAs as it comes to know the market. Then it will become a dominant force for RIAs seeking Web-based portfolio management software.