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June 01, 2005 at 04:00 AM
The news from Fidelity was big. “Fidelity Investments today an- nounced an integrated technology platform that will be the first in the industry to combine core technologies registered investment advisors need, in a single sign-on environment, to help them simplify workflow, increase operational efficiency, and more effectively manage growth,” said the April 5 news release.
Could Fidelity have secretly developed the all-in-one platform advisors have yearned for? It sure sounded that way.
Fidelity has been locked in a ferocious battle to topple Schwab Institutional’s once-dominant hold on the RIA business. With an integrated RIA platform, Fidelity would score a blow against its archrival, which for years had been credited with having the best technology platform.
“Fidelity Advisor Channel will seamlessly connect those technologies that are critical to an advisor’s practice, including contact management, financial planning, trade order management, and practice management support,” said the press release. “Fidelity expects the platform to be available later in 2005, with subsequent enhancements in 2006.”
For years, advisors prayed for a technology tool that would take client data entered in one database and automatically populate their planning tool, portfolio reporting application, and contact system. So financial services giant Fidelity’s claim to have found the Holy Grail was noteworthy.
Custodian-provided technology is likely to reshape the competitive dynamic of the RIA market. Schwab Institutional has used this strategy for years. But the advent of integrated Web-based platforms, where data and core applications for running an RIA reside on remote servers, puts a new twist on the strategy.
Schwab had tried using a Web-based platform to work with RIAs, but it back-burnered the idea after it ran into problems reengineering Centerpiece on an SQL database. It made that decision after its plan to sell Centerpiece only to RIAs that custody assets at Schwab created widespread fear among RIAs that Schwab was meddling with their independence. Fidelity’s take on the Web-platform strategy ensures that in the next couple of years, Schwab and other custodians will be tempted to move in this direction.
The business impact could be significant; RIAs may have to choose between becoming technologically captive to platforms provided by their custodians or remaining totally independent. Consider what happened during my review of Fidelity’s new platform.
Eight independent advisors agreed to take a Fidelity-led tour I organized. Some already custodied at Fidelity, but most were Schwab Institutional and T.D. Waterhouse Institutional clients. The session started cordially with Patrick Jancsy, a senior VP in charge of Fidelity’s advisor technology offerings, giving an overview.
“Advisors are subject to highly inefficient operations. Yet they want to grow their practices in an efficient way,” Jancsy noted, while showing screen shots of how the new integrated system would work.
Fidelity, he explained, had partnered with Integrated Decision Systems, a New York-based maker of a Web-based institutional-quality portfolio accounting software package (favorably reviewed in this space in March). Fidelity’s brokerage back office is now integrated with IDS, which allows advisors to use Advisor Channel, Fidelity’s proprietary technology for viewing and trading accounts, to work with data in IDS’s portfolio accounting system. Thus, an advisor can run a “What if I rebalance?” report from Advisor Channel to see which trades would be needed to rebalance an account. Then he can transmit sell or buy orders directly to Fidelity, and the data will be updated automatically in the IDS PMS system through Advisor Channel. Best of all, the cost of integration of the third-party software to the RIA will be zero. You buy a license to IDS and you get Fidelity integration for free. Advisors liked that.
However, after this the mood changed and questions became more pointed. Jancsy was put on the spot.
You see, Fidelity’s IDS integration will not be available until later this year. And while Fidelity plans to integrate Advisor Channel with the Web-based version of NaviPlan, neither that nor the contact management system integration will be available until 2006.
With this clarified, the advisors asked practical questions about the integrated platform. One advisor asked how his RIA would use the platform if not all its assets were held at Fidelity. The answer: You could use it only for your Fidelity assets.
