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Portfolio > Portfolio Construction

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

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Integrated Decision Systems, the portfolio management software company that lost its venture-capital funding after it was selected as the centerpiece for Fidelity’s new integrated technology platform for RIAs, has been purchased by CheckFree Corp.

The $18 million cash purchase price reflected the value placed by CheckFree on IDS’s technology for large institutions, but it did little to clarify whether IDS’s portfoilio reporting system would continue to play a central role in Fidelity’s RIA platform, or play any role as a portfolio management software vendor in the independent advisor market. The sale was announced on September 2 and closed a week later.

According to a source familiar with the bidding, the investment banking firm hired by IDS, USBX in Los Angeles, solicited about 25 industry participants to generate interest in bidding. USBX posted on the Web in secure folders about 400 documents with financial, marketing, and other information about IDS’s business that were accessed by bidders.

IDS, a 24-year old company with $4 trillion of assets on its portfolio accounting systems, nearly collapsed in mid-June after differences over the future direction of the company had caused its two venture capital backers to refuse to provide IDS with additional funding. The company initially fired all 80 of its employees on June 20 and management was considering bankruptcy, according to former employees. Only after the VCs agreed to fund the company with enough cash to last for a couple of months was the company able to bring back 20 to 25 employees to keep the business running while an auction of the company went ahead.

Fetching $18 million for the company, which was rapidly unraveling and had lost or dismissed 50 of its 80 employees, was considered a victory for investment banker Jay Beaghan, who heads up technology banking at USBX. “To the extent that the various constituents could not get on the same page before we got involved, after our involvement its seemed like everyone was going in the same direction,” said Beaghan.

Alex Marasco, an executive VP and general manager of CheckFree Investment Services, a unit of the publicly held company, said he was planning to meet with Fidelity executives to discuss whether IDS’s platform for RIAs would continue to be used or replaced.

“We don’t have much to say at this point,” says Fidelity spokesman Steve Austin. “We’ve been in consultation with CheckFree senior management to discuss our relationship and how the acquisition could potentially affect our clients,” says Austin. “We’ll be providing information to our clients first.”

IDS’s core business came from two institutional products, Caliper and Global Investment Management (GIM). Caliper provides performance reports to institutions with large numbers of retail clients. In addition to being the performance reporting system behind Fidelity’s retail Portfolio Advisory Services mutual fund wrap account, Caliper is used for reporting at AG Edwards, UBS Financial Services, and Wachovia. GIM provides large institutions with a portfolio accounting system as well as performance reporting.

Sources familiar with the institutional portfolio accounting business say CheckFree, which is the dominant portfolio accounting software company in the wrap account business, was mainly interested in acquiring IDS because of its two institutional products. Calipers brings CheckFree new business with large sponsors of wrap accounts. Since CheckFree has dominance among wrap account managers, adding to its strength on the other side of the wrap account business–among sponsors–is beneficial. GIM will bolster CheckFree’s non-U.S. reporting capabilities, an area where GIM is strong because it is a multi-currency system.

Whither IDS’s RIA Business?

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. (, 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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