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THE GLUCK REPORT, Part I: Enter the Giant

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In what could emerge as a pivotal development in the evolution of the independent advisor segment of the financial services industry, Intuit is launching a portfolio management software product for independent financial advisors. Yes, that’s the software giant with $2 billion in sales that is best known for its Quicken consumer personal finance software and QuickBooks small business accounting software.

“We have a long-term opportunity and this is the initial product in the suite,” says Bob Stock, director of new products at Intuit. The entrance of this huge, household-name company with expertise in making easy-to-use accounting software could shake up the business of providing technology to independent advisors.

Interestingly, Intuit has licensed software code from Interactive Advisory Software instead of building its own PMS application. IAS–an Atlanta software company–entered the PMS market four years ago. Intuit hired IAS as its development arm to rewrite the interface to IAS’s Web-based PMS application, and Intuit will by the end of the year begin selling a simple product targeting small RIAs who do not require a deep, sophisticated portfolio accounting and reporting solution.

Although Intuit has insisted that it is only targeting one- and two-man RIAs with simple needs, a more robust offering seems likely to be developed over the next couple of years. “There is a possibility of doing broader things in the segment,” says Stock. “Over time it is possible that we will have a full suite of offerings under the Intuit brand to meet much broader needs of the planning community.”

My guess is that Intuit, a marketing machine, is getting primed for a major effort in the independent advisor market. Toward the end of this story, I’ll give you details about the cool reception the new product received from advisors I invited to attend a demo of PortfolioMinder. But the tepid response is almost unimportant when you consider the strategic implications of Intuit’s entry into this market and that this is an initial release of a relatively bare-bones PMS product that likely will become much more sophisticated. By re- leasing PortfolioMinder as a simple product for small RIAs, Intuit sets expectations low as it dips its toe in the advisor market. But when you examine the move in the context of Intuit’s overall strategic direction, the launch may presage a bigger plan.

A Strategic Move

PMS is the most important software application in an independent advisor’s business because it is the central repository of all customer account data, and it can be used to port data into customer relationship management, financial planning, analytics, and other software applications. By launching an accounting application, Intuit establishes a beachhead on advisor desktops that could be built up in the years ahead, and could transform the landscape of PMS providers.

Market share among PMS companies serving independent advisors has for years been dominated by Advent Software, a publicly held company serving hedge funds, money managers, and institutions as well as small RIAs, and by Charles Schwab Corp., which dominates the RIA custody business and that over a decade ago bought a PMS software company serving small RIAs. Advent and Schwab–both large companies that are dependent on independent advisors serving individuals for only a portion of their total revenue–faced competition from a few relatively tiny privately held rivals, including Financial Computer Support Inc., CapTools, and a few others. In the last few years, a number of new, privately held firms have sprung up to compete for the independent advisor PMS business, including Investigo, Major Technology, Albridge Solutions, Cornerstone Revolutions, and IAS. Intuit, like Schwab and Advent, is an 800-pound gorilla and it has the resources and expertise to throw its weight around.

“What we’ve come up with is a low-cost, simple-functionality portfolio management software (PMS) solution,” says Kate Welker, business manager for Intuit’s PortfolioMinder.

Welker says Intuit’s interest in entering the advisor market started after Intuit exhibited at the annual convention of the Financial Planning Association. Intuit initially started exhibiting at the conference because some advisors gave to their clients copies of Quicken, Intuit’s flagship personal financial management software for consumers. “One big surprise was that we learned that a lot of advisors were also using Quicken for tracking their client portfolios,” says Welker. She said that small businesses began using Quicken and that was why the company created QuickBooks; with some advisors now using Quicken for tracking portfolios, moving into the advisor market seems logical.

New Products Fuel Growth

Moutainview, California-based Intuit has 6,900 employees, is a member of the Standard & Poor’s 500 and Nasdaq 100 indexes, and has an $8.1 billion market capitalization. While the company earned net income of $375 million over the trailing 12 months ended July 31, its quarterly earnings growth over the previous year declined by 53% and it is under some pressure to find new markets. Over the past five years, Intuit had growth of 21.2% annually in earnings per share, but the consensus of analysts is for an estimated annual growth rate of just 15% over the next five years in earnings per share.

“The markets for many of our products are maturing and as a result we believe that our revenue growth is slowing,” according to Intuit’s 2004 annual report.

With Microsoft Corp., its chief rival, vying for the consumer market with its Money software and its plans to accelerate its move into small business financial management and accounting software, it is growing more difficult for Intuit to grow revenue because upgrades of Quicken and Quickbooks have become less attractive to customers. Those packages are rich with features and do the job consumers or small businesses need. “As our existing products mature, encouraging customers to purchase product upgrades becomes more challenging unless new products provide features and functionality that have meaningful incremental value,” says Intuit’s annual report.

As pressure has grown in recent years to find new revenue sources, Intuit has embarked on a series of small business initiatives. Moving into the advisor channel is but the latest in a string of efforts to target niches in small business verticals.

In November 2001, Intuit acquired all of the assets of Omware, rebranded it as Intuit Construction Business solutions, and made it part of an Intuit-branded small business push. In May 2002, Intuit acquired the software maker The Flagship Group and branded it as Intuit Public Sector Solutions to offer accounting for nonprofits, universities, and government agencies.

In July 2002, Intuit bought Management Reports and branded its application as Intuit Distribution Management Solutions, to provide business management software to residential, commercial and corporate property managers. That same month, it acquired Eclipse Inc. to provide business management software to durable goods wholesalers.

“We continue to develop new products and services to mitigate the impact of this slowing growth in the long term,” says the management discussion section of the annual report. In the discussion of risks that could affect the company, the challenge of slowing revenue growth is also spelled out. “The growth of some of our businesses is slowing, and if we do not continue to introduce new and enhanced products and services our revenues and margins will decline,” says the report.

The IAS Connection

In casting about for a way to enter the PMS business, Intuit could have built its own system, bought a small company already in the business, or licensed the code to an existing application. With the latter option likely posing the least amount of risk, Intuit partnered with IAS. IAS is a descendant of a DOS-based program called IFS, which was popular among a small group of planning pioneers in the 1980s. IFS integrated CRM, financial planning, and portfolio accounting in one application. It was years ahead of its rivals.

When the developers of IFS, David and Linda Grace, sold their company to an insurer in the 1990s, users were set adrift. Nearly five years ago, a small group of financial planners who fondly remembered IFS cut a deal with IAS and brought in David Grace to help shepherd back the software.

When I first covered IAS in January 2003, I said that it represented a significant development in advisor technology because it integrated three applications every advisor needs under one database, but I also said that “whether it will succeed is far from clear.” What I wrote did not please the chairman and founder of IAS, Herzl Hyton. “I believe it will take at least a year, and probably two, before planners and broker/dealers in meaningful numbers will want to switch their offices to IAS,” said my January 2003 review. “Until then, its two main target customers–B/Ds and independent RIAs–will stand on the sidelines and watch the software develop as early adopters go through the painful process of betting on a new company.” This past February, in a follow-up on IAS, I wrote a much more positive review but cautioned that IAS remained too complex and that few advisors would want the total IAS package. They might like IAS’s PMS, CRM, or planning capabilities, but were probably already using an application for planning that they liked better, or they might not like the CRM or PMS and would choose not to buy the whole package.

Faced with these challenges, Hyton has chosen to partner with Intuit and ride its marketing machine. I have no idea if Intuit has an option to buy IAS outright or what the terms of its licensing agreement with Intuit are. My guess is that if Intuit succeeds with PortfolioMinder, IAS could be bought by Intuit. But Intuit could also just build out the product it on its own.

For now, Hyton says Optima is continuing to pursue IAS’s original mission: to provide a high-end integrated PMS, CRM, and planning application for personal financial planners. “Intuit will go off into a much broader market with a PMS-only solution and IAS will continue to focus on the RIA financial planner,” says Hyton.

“When we looked at partnering with Intuit, it became brutally clear to us that our value proposition is an integrated platform,” says Hyton. “All they wanted was a PMS solution, so I saw no conflict.” But he adds: “Where they go in the future with it, I have no idea.”

If its initial foray into advisor PMS software works out in coming months, I suspect Intuit will add CRM and planning to the PMS application it is licensing from IAS. We just don’t know if IAS will build it.

IAS has 110 firms on its integrated Web- based PMS, CRM, and planning application. It is a massive and complicated application that does more things well than just about any other advisor software out there. It is competing against much larger rivals that have raised millions of dollars in funding, including AdviceAmerica, eMoneyAdvisor, and EISI NaviPlan. These companies have planning applications and some are integrated with account aggregation applications or CRM systems, but none of them are integrated PMS, CRM, and planning applications. While Optima has been more ambitious than other vendors, it has not yet had great traction in the market and that could be why Hyton partnered with Intuit.

“IAS did the deal because with Intuit we recognize an incredible sales and marketing engine that could take our technology and a subset of our product to market in a way that we would never be able to do ourselves,” says Hyton. “We don’t have that reach, and they have an installed client base of users asking for this.”

My experience with Hyton is that he is a stubborn entrepreneur with a conscience. He chose not to market IAS more aggressively because IAS was challenged by problems with converting advisors from existing PMS vendors. “We have been moving at a pace that made sense for our size,” says Hyton. “We got bogged down with conversions and realized that this was a highly service-oriented business, and we have spent a huge amount of energy and resources honing that process. We are now in a better position to move at a faster pace because we now have processes and people trained to do it.”

Despite the licensing agreement with Intuit, Hyton says IAS will charge ahead. Hyton says he personally has spent months rewriting the interface to IAS to make it less complex and that he plans to aggressively pursue selling the application to RIAs and institutions that need a sophisticated all-in-one application on which to run planning practices. For sophisticated planning firms looking for an all-in-one solution, this will be an attractive option and will be a totally different product than the slimmed down, easy-to-use program Intuit is going to be marketing initially.

First Impressions

Like IAS, Intuit PortfolioMinder is a Web-based PMS application that runs on a Microsoft SQL Server database, making it scalable for use on an enterprise level. Intuit says it is geared to one- or two-man advisory firms with fewer than 100 clients.

It contains some of the features required by demanding advisors, including tax lot accounting of all varieties–First-in-First-Out, Last-In-First-Out, Highest-Cost, Lowest-Cost, Average-Cost, and Actual-Cost. The program comes with nearly 30 reports, including nine graphical reports, and it comes with the same interfaces offered by IAS, which include Pershing, Schwab, Ameritrade, TD Waterhouse, DST, Fidelity, and Bear Stearns. Advisors download their data directly into PortfolioMinder using the interfaces or download their account data into a custodian’s account management utility and then upload it to PortfolioMinder. In addition to allowing advisors to access reports, you can allow clients to access the application on the Web so they can access their own reports, and a virtual vault is also included in the client portal.

Advisors can send their logo to Intuit to have it added to reports and can create a group of reports for each individual client to receive each quarter. You can create blended benchmarks, run realized gain/loss and unrealized gain/loss reports, and PortfolioMinder accounts for government, corporate zero coupon, GNMA, and inflation bonds.

Testers Underwhelmed

In a demo attended by nine advisors at my invitation, Intuit’s Welker made a point of showing how the account reconciliation process contains a good bit of user assistance. Basically, when you come across an error, you can click on it and get an explanation for why the error might have occurred.

While the features mentioned here would put PortfolioMinder instantly in the running when compared with other PMS applications I’ve reviewed previously, the panel of nine advisors who attended the Web demo–mostly sophisticated advisors who have attended demos of several other PMS applications with me in the past–reacted.

“It is stunning to see how simplistic the system is given Intuit’s resources and that they are actually licensing a much more robust system from IAS,” says Bill Ramsay, of Financial Symmetry in Raleigh, North Carolina. Ramsay was troubled by the fact that the system is not integrated with other applications, such as CRM. Since it is Web-based and database-driven, integration should be available, he says.

Dean Giella, who is a sole practitioner at Financial Education Advisors in Jericho, New York, did not like the fact that users have to download from one custodian at a time instead of in one batch.

One feature that some advisors may not like is that you cannot batch-print reports to a PDF. You can batch-print all of your reports to your printer and then manually parse the hardcopy reports. But PDF batching is not available. This could be a problem since some advisors batch-print all of their reports to one long PDF and then manually parse them into individual reports for each client to be saved for regulatory purposes. With PortfolioMinder, you have to individually print each PDF and then save it, which could be a hassle depending on your routine for preparing reports.

With fewer than 30 reports to choose from–nine of them containing graphics–and no ability to create your own customized reports, Mehmood Nathani, president of Altius Financial Advisors in Bethesda, Maryland, said he was not impressed.

Nathani also raised concerns about Intuit’s commitment to the small-RIA market. “I want to see if they stick to it and do not exit the business in a year or two.” This concern is well founded; in August 2004, just two years after entering the business of providing software to universities, not-for-profits, and government agencies, Intuit changed its mind about that vertical and sold the business. So its staying power is suspect. Nathani, a sole practitioner who is a CFA, also cautioned that Intuit’s assumption that small advisors are simple may be flawed. “I don’t believe there are ‘simple’ advisors,” says Nathani. “Everyone managing money should be somewhat sophisticated.”

Several advisors said Intuit’s pricing was high. At $495 to set up and $150 per month, the program would seem to cost thousands less than Schwab PortfolioCenter, yet the advisors at the demo said the price was high. Bruce Fillpot, a sole practitioner at Shelby Wealth Management in Albuquerque, New Mexico, says small advisors can get comparable pricing from Advent for a much more robust desktop PMS application.

Overall, a Positive Development

Despite all of these negative comments, however, several of those attending the demo session are optimistic. “I am happy to see another entrant into the PMS arena, especially a company like Intuit that is likely to offer new ideas,” says Aaron Spahr, a technology specialist at Securities America, a large independent broker/dealer in Omaha, Nebraska. “While the product has a lot of catching up to do, it will be interesting to see how much functionality the final release includes.”

I am with the optimists. The product we were shown is still in beta and will not be released until late this year–at the earliest. By then, Intuit could perhaps fix the batch PDF printing problem. While this–along with the limited number of reports, lack of rebalancing alerts, and inability to create customized reports on your own–is a formidable limitation, Intuit can fix all these issues if it decides there is money to be made in the independent advisor market. With the PMS vendors dominated by Schwab and Advent–two giants many advisors don’t trust with their data–the entrance of a huge firm with a record of creating accounting technology for small businesses is a very positive development.

“Intuit’s mission,” says its annual report, “is to transform the way people run their businesses and manage their financial lives. Our goal is to create solutions so profound and simple that customers would not dream of going back to their old ways of keeping their books, managing their businesses, and preparing their or their clients’ taxes, or organizing their personal finances.”

If Intuit–the largest technology company ever to enter the independent advisor market–can fulfill its mission in this little corner of the world, independent advisors will be better off.

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]