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THE GLUCK REPORT, Part II: Portfolios, via the Web

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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

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.

Trying Out IAS

When I last reviewed this software a little over two years ago, I said the software was off to an exciting start but that it would “take at least a year and probably two before planners and broker/dealers in meaningful numbers will want to switch their offices to IAS.” It now seems ready for prime time.

Consider the results of our poll of advisors who attended a two-hour demonstration of IAS. Of the eight who saw the program, one gave it 6 out of a possible 10, two rated it 7, one 8, three 9, and one 10. Of the 12 advisors who took part in our Albridge demo, one rated it 2, three rated it 5, two 7, and six 8.

IAS’s predecessor application has been around since the 1980s. When the developers of the software, David and Linda Grace, sold it to an insurer in the 1990s, users were set adrift. Three years ago, the users, a small group of financial planners, cut a deal with Optima Technologies of Atlanta and brought David Grace back. The long path has yielded a program with a complex-looking interface. There is so much going on and the program is so deep in detail because it was developed by planners, who have kept adding to their wish list of features and telling Optima engineers and Grace what they want.

Are you working with a separate account manager and want to treat that portion of your portfolios as a separate asset class? IAS can do that. You can also classify securities different ways–by market capitalization, style, industry sector, and other categories; export reports to Word documents or Excel spreadsheets; and give clients access to their own configurable home page to see performance reports and other documents stored in a virtual vault on IAS’s server. IAS handles all types of tax lot accounting and tax lot management methodologies, including the ability to track the actual cost basis of a specific lot, and allows you to specify the lot you wish to sell. While Advent Axys and Schwab PortfolioCenter provide this level of tax lot management, dbCAMS, Advisors Assistant, and Cornerstone Revolution PowerBroker do not. With interfaces to Schwab, Waterhouse, Ameritrade, Pershing, NFS, and a dozen other institutions, IAS covers the big custodians.

IAS offers 50 reports, including 12 graphical ones, and they can be customized. The reports were developed with the help of users, and you can tell. A “Trend Report” shows positions for the past five quarters, for instance, giving clients and advisors a quick snapshot of how a portfolio has changed. However, the reports are not well formatted. While you can export the charts into Excel and make them look better, it would be good if IAS’s focus on substance was a little more aware of form. The interface is also so loaded with data that a new user is likely to feel overwhelmed.

A Big Glance

The “At A Glance” opening screen, for instance, lists not just clients’ names and portfolios, but family members, other advisors, pending tasks, appointments within 30 days, the last three encounters, all their accounts, and more. It’s a lot of information. Part of the complexity is because IAS’s PMS application is integrated with its CRM system. The two modules are sold as one. If you are currently using a CRM system, you might wish to give that up if you want to use IAS’s PMS system. For advisors who want to integrate a financial planning module, IAS’s cash-flow-based system may be attractive. However, if you are using another planning software and do not like the complexity of IAS’s planning module, then the integration of planning may not work for you.

Advisors for years have been looking for an integrated PMS, planning, and CRM system. While IAS is by far the closest thing we have seen yet to this silver bullet and may satisfy the desire of those planners who want one package to run their entire office, the problem of planners being discriminating will remain. Most planners will want to stay on their chosen CRM system or planning system even if they use IAS’s PMS module. In this regard, Albridge’s approach may prove wiser. Rather than building planning, CRM, analytics, and other applications that advisors need into their program, Albridge has published specifications for integrating with its system. Other software companies can use that as a guide for meshing their products with Albridge.

But even though I doubt whether IAS can be all things to all advisors, I do believe it is a good PMS application for many people seeking a Web-based solution. This is partly a function of its price. Giella would pay a setup fee of $3,000, a conversion fee from Portfolio 2000 likely to be around $5,000, and a $3,000 annual fee. If he chose to add IAS’ planning module, his fee would be $5,496 annually. For Boone Advisors, IAS said it would charge a one-time setup fee of $3,000, a conversion fee from AdvisorMart of about $5,500, and an annual fee of $20,316–far less than the $90,000 annual fee for Albridge. With IAS, the advisor must reconcile data, while this task is automated and much less time consuming with Albridge.

My guess is that IAS, which now has ironed out most of the kinks that dogged it two years ago, is about to become a formidable competitor in the PMS market for RIAs who are comfortable with a Web-based system. It now has 1,000 H&R Block reps and 750 independent advisors using its application. It is leading the charge of a new generation of competitors that include Albridge, Investigo, Integrated Decision Systems, PowerBroker, and others still under wraps that are trying to break into the market. Sophisticated investment advisory and financial planning firms will be attracted to IAS’ depth and full-featured offering. IAS also offers a locally run version for advisors who are uncomfortable with having their data on someone else’s server. IAS itself does not market this forcefully, but for larger advisor firms with technology recourses, this may be an attractive option.

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]