THE GLUCK REPORT, Part II: Happy Ending for IDS?

What is less certain is the value to CheckFree of IDS’s fledgling RIA business. When the financial crisis struck IDS, it was about to roll out a Web-based portfolio accounting system for RIAs. In a review of the system this past February, I predicted the system would become a leading PMS candidate for even the most demanding RIAs because it had the look and function of an institutional system and was aimed at sophisticated wealth management firms.

For instance, IDS’s ASP had the ability to rebalance against model portfolios, and a tool that alerted you when a portfolio is out of whack–allowing an advisor to define a sensitivity level that would trigger the alert. IDS also let you automatically select for sale the high-cost long-term gain, lowest-cost long-term gain, highest-cost short-term gain, and lowest-cost short-term gain lots. It also did that for losses. Better yet, it automatically selected the best tax methodology for you, and it could run the different tax methodologies before you executed trades so you could see how they would affect portfolios before you moved. Moreover, IDS was developing a tool to integrate its trading module with its rebalancing and tax management tool so that the system would automatically make the trades needed to rebalance globally, so you would be able to trade all accounts against their respective models at once and rebalance them. This was great stuff that would raise the bar for all PMS vendors.

CheckFree is a publicly held provider of financial electronic commerce services and products. Based in Norcross, Georgia, CheckFree powers electronic billing and payment for banks and other institutions and provides a broad range of products to automate financial transactions for financial services companies.

With the company being sold to CheckFree, however, it is possible that the IDS ASP may be discarded. Why? Because selling great PMS systems to sophisticated RIAs is not an easy business. It’s not a huge market and serving a demanding RIA can be very difficult on a vendor. Moreover, the ASP business was what drained IDS financially, so plunging ahead with it for CheckFree is risky.

“To be honest, we’re evaluating all of our options,” says Marasco of CheckFree. “We’re looking for an economic way to support Fidelity in that space.”

CheckFree five years ago made an effort to enter the independent advisor market with a PMS application. It was a scaled-down version of its Web-based product used by wrap account managers. In fact, I moderated a panel discussion about PMS software at the Schwab Impact conference five years ago and CheckFree was one of the panelists. However, the push died within months and CheckFree never actually rolled out an RIA product.

Marasco says that CheckFree could choose to maintain IDS’s ASP system as a product for advisors, or it could revive its old plan and use its high-end ASP for wrap managers to build an RIA product. “We have the technology to meet the needs of this market,” says Marasco. “The big question is the marketing effort and how we would introduce people to our product when the RIA market is so fragmented.”

Adds Marasco: “We want to be in the RIA market and we are trying to find a way to do it in an economical fashion.”

The IDS episode highlights the unpredictable nature of many of the companies independent advisors rely on for technology and other services. Most are privately held and many are venture-capital backed, making them susceptible to buyout and fast changes in management. On the other hand, if a vendor is publicly held, an advisory firm must be aware of the difficulties this could pose. Large publicly held companies are loyal above all to shareholders and not to customers. In addition, large companies with more resources that can provide more services can use that as a lever, which make some independent advisors uncomfortable. Advisors selecting technology vendors need to take this into consideration.

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].