THE GLUCK REPORT, Part I: Second Act

Major has his work cut out for him. The ratings he received from our advisors, who saw the software in a 90-minute Web demo, were mixed. Of the 10 advisors asked to rate AssetBook on a scale of one to 10, with 10 being the best rating, two gave it a nine, one gave it an eight, two a seven, one a six, three gave it a five, and one gave it just a three. While these are not great scores, even the advisors who gave AssetBook a low rating were hopeful. For instance, look at comments from two of the panelists who rated AssetBook a five.

“This is a good base for an expanding system,” says Sandy Derato, who runs a dbCAMS service bureau and has worked in the PMS business for two decades. “Information is clearly displayed and Rob seems willing to add features that were suggested.”

“I was impressed with the amount of features that have been developed by such a small team,” says Aaron Spahr, who evaluates technology used by advisors affiliated with Securities America. “The product seems crude now but could be a serious contender with a year or two of continuing enhancements.”

Not Quite There Yet

The immediate problem is that AssetBook is missing some important features. For instance, the software could not do anything but average tax lot accounting, could not run a realized gain and loss report, and while you can set your target allocation to an individual security or fund, you cannot set your target allocation for an asset class. Despite all this, I see Major succeeding.

By September 30, he says, AssetBook will be capable of running a realized gain and loss report. He says that by then it will also be capable of first-in-first-out, last-in-first-out, highest-cost-, lowest-cost-, and actual-cost-lot accounting and tax management. So you’ll be able to specify which lots you want to sell and perform all of the other important tax lot management tasks that PMS programs must handle in order to serve RIAs properly.

AssetBook already provides some capabilities that other software does not–like alerts. When you have a large slug of cash come into a sweep account, AssetBook can alert you to it. You can also track a client’s performance against his goals, not just against stock and bond benchmarks. AssetBook can download from just six institutions, however: Schwab, Fidelity, Waterhouse, DST, Pershing, and Rydex. You can expect that to change in coming months as more interfaces will be written.

Major says that an integrated trading module, TradeBook, will be beta tested in the first quarter of 2006. It will allow for automatic rebalancing of portfolios, provide alerts on which positions should be rebalanced, and permit exclusion of specific securities or portfolios from a global rebalance of all portfolios (which is handy for portfolios with concentrated positions on which you do not want to take gains).

A Charge for Service, Not the Software

One thing that will be different from other PMS applications is that Major will not charge anything for his software. What Major Technology Resources is charging for is a service–downloading and reconciling; the software, Major says, is free. Pricing is based on the number of accounts (not portfolios, not households) serviced. It is $24 per account per year. However, if you have more than 50 securities in an account, then it’s another $12 per year for the next 50 securities in that account.

MTR, which is located in McHenry, Maryland, is also converting advisors from their current PMS system at $100 per hour. While the cost of conversion varies depending on the number of accounts, the number of years of transaction history, the number of custodians, and the amount of trading, Major says most RIAs should expect to spend between $3,000 and $5,000 to convert.

I asked Major to provide pricing for three typical RIAs. For a sole practitioner with $20 million under management spread among 50 clients and 150 accounts, who needs two custodial data interfaces and has four years of data history, the conversion and implementation cost would be about $2,500 and the annual fee would be $3,600. For an RIA with three advisors, $95 million under management, spread among 145 clients with 350 accounts at four custodians, and with some transaction data dating back as far as the mid-1980s, conversion and implementation would cost about $5,000, and the annual fee would be $8,400. Finally, for an RIA firm with seven staffers who access the system, 219 clients, 540 accounts, $214 million under management at four custodians, and 11 years of transaction history, conversion and implementation would cost about $8,000, and the annual fee would be $12,960.

The pricing, if it is sustainable, is pretty low. For instance, it considerably less expensive than licensing Schwab PortfolioCenter to run on your desktop and outsourcing download and reconciliation tasks to a service bureau. (That software and service combination is equivalent to what MTR and AssetBook provide.) Even if you don’t buy a full license of PortfolioCenter and choose to utilize new service bureau licensing fees recently announced by Schwab for PortfolioCenter, AssetBook is still likely to be considerably less expensive. It is also likely to be less expensive than licensing Advent Axys and paying a service bureau to handle downloads and reconciliation.

“I would seriously consider using this product in a few months when the bugs are ironed out,” says Richard Del Monte, a financial planner in Alamo, California, who uses Advent.

“AssetBook has taken the best features of Advent and Schwab PortfolioCenter and incorporated them into this package,” says Catherine Jacobs, a planner who runs Outsource Opportunities in Shreveport, Louisiana, a service bureau for outsourcing planning and PMS data management.

After seeing a Web demo of AssetBook, George Taylor of Temenos Inc. in Watertown, Connecticut, told Major he would become a beta tester. “It is still a work in progress, but I like the idea of using a hosted solution,” Taylor says, “and believe Major has found a business model that is scalable but also can work with a small number of clients.”

The business risks are what an advisor should probably be concerned with. Major has just two employees in addition to himself. Ken Park, a programmer who previously worked at Techfi and dbCAMS, is singlehandedly coding the entire application. In addition, there is an administrative assistant, who is downloading and reconciling for six beta testers. “It takes him about an hour a day to do all six clients,” says Major. He plans on outsourcing the servicing of accounts to service bureaus, and he will consider adding employees to handle download and reconciliation only if it makes economic sense to do so.

Although Rob Major has some work to do over the next year or two to make AssetBook a viable competitor, I think there’s a good chance he can overcome the hurdles. I am guessing he will make AssetBook a successful niche PMS provider over the next five years to a few hundred RIAs that want a high level of service. I underestimated Rob Major once before, but I won’t make that mistake again.

Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (www.advisorproducts.com), 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].