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Technology > Marketing Technology

THE GLUCK REPORT, Part I: Not Quite Ready

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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.

Therein lies the rub. An advisor who wants to keep some assets at Fidelity and some at Schwab to diversify among custodians has little choice but to run two platforms–Fidelity’s integrated system for all Fidelity clients, and his current technology for non-Fidelity clients. Using a free proprietary platform to persuade RIAs to consolidate assets at Fidelity is a great strategy. But some advisors are uncomfortable relying on their custodian for their integrated platform, as I discovered in a Web-based survey after the call.

“We are just beginning to utilize Fidelity Advisor Channel and we will never utilize one custodian for our entire book of business,” said Janelle Fumerola, an advisor with JFS Wealth Advisor in Hermitage, Pennsylvania. “When you rely on a custodian for that much support, it is inevitable that they will abuse the power.”

“I don’t like to be reliant on my custodian for technology solutions,” said Tom Connelly, of Versant Capital Management in Phoenix. “That reliance worries me from a business perspective and from a conflict of interest standpoint–being dependent on a custodian to obtain access to their tech, which at its core is a soft-dollar issue.”

“It would be a concern to have it hosted by any custodian,” said Bill Ramsay of Financial Symmetry in Raleigh, North Carolina, “though we’d have to research to see if we could be comfortable with it.”

Despite the fact that Fidelity would not be hosting the RIA client data (that would reside on servers hosted by the technology companies partnering with Fidelity), only one of the six advisors who filled out the survey said he had no qualms.

About two weeks later, I spoke at the Northern California Chapter of the Financial Planning Association about technology and told the audience of about 60 advisors about the experience. Their reaction was similar to that of conference audiences for several years when I’ve spoken about the use of Web-based applications by custodians.

RIAs who sell financial advice and not just products are the most independent of all independent advisors. But it seems once an advisor goes from selling products to selling advice, he sees more clearly the unique value he offers to clients; this is probably why RIAs are particularly leery of depending on a B/D or a custodian.

Not all RIAs are so independent, though; many will see value in partnering more closely with a custodian. My guess is that 15%, perhaps 20%, would welcome a proprietary integrated technology platform from their custodian–along with the savings and efficiency. Moreover, the prospect of receiving referrals from the custodian’s retail branch networks is likely to sweeten any deal for RIAs willing to give up some independence.

This could change the RIA business in a big way. A significant number of RIAs will essentially become captive to their custodians. It will be interesting to see if the Securities and Exchange Commission requires these advisors to make special disclosures about their ability to fulfill their roles as fiduciaries. After all, if you use only one custodian, are you really able to fulfill your obligation to seek best execution of trades?

Most RIAs will not settle for a platform that does not include their particular planning software or contact management solution. While Fidelity plans to add planning applications after NaviPlan is integrated in 2006, it could take many months for others to come online and offer a full range of choices covering CRM, planning, and portfolio reporting applications. Only advisors willing to adapt to Fidelity’s choices, therefore, will be attracted to the offering.

Independent RIAs may be well served by this from a marketing perspective; they will remain different because they will not use the same planning software, money management products, and techniques as other RIAs.

For advisors who want an integrated platform but don’t want to rely on a custodian for the technology, the good news is that custodians are blazing a trail for you.

Technology developed for a custodian is likely to be offered later off the custodian platform. With the advent of more Web-based applications, and desktop software being built on Microsoft SQL databases, integration will be offered directly to RIAs because the market will demand it. It will just take some patience before it happens. In the meantime, for advisors frustrated with inputting data into PMS applications, you have a good alternative right now: hire a service bureau and outsource the task. For advisors searching for an integrated platform in order to ease the burden of maintaining client data, a service bureau may be a good alternative. I’ll explore that option in part two of this month’s column.

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].


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