Your Best Partners

Technology for financial advisors has come a long way in recent years, but probably remains the most complained-about aspect of running an advisory practice. After a decade of covering technology for independent advisors, I don’t know of a single technology product that has not been the subject of complaints. Even software that gets favorable comments from numerous advisors is often the subject of derision among others.

So in providing you with our annual directory of technology companies, it’s fair to explore the yin and yang of advisor technology and professional software. We live in an era in which technology–whether it’s your cable TV system, network server or e-mail system–is consistently imperfect. Even Microsoft, the world’s largest, most profitable software company, with technology that everyone uses on their desktops daily, does not provide a fantastic customer experience.

Is it fair to expect more from a financial services technology company that has just a couple of hundred customers and a few million dollars in sales than you might for companies many times larger? Many advisors will probably say it is.

Technology problems, like the ones you experience in consumer products, are more than mere inconveniences when it comes to business. In business, your income is at stake. Client service is on the line. So tech companies selling business products to advisory firms should arguably be held to a higher standard.

Many advisors say they are willing to pay the cost for superior service and reliability, but in the real world, there is not much evidence to support this contention. Advisors time after time choose the lowest cost route in selecting technology, but still expect it to work just as well as they would a more expensive product. Advisory firms are often frugal to the point of hurting their businesses.

For example, most RIA firms seem to be jury-rigging their e-mail compliance solution. They print out all their e-mails to and from clients or they occasionally back up their Outlook “pst” file and think that is sufficient. They don’t have a written procedure for dealing with e-mail archiving, or people assigned to carry out a routine process for following the procedure. Many RIAs would be unable to retrieve e-mails in the event of a rigorous audit by a Securities and Exchange Commission examiner. While many e-mail compliance products built specifically for RIAs are out there, many, if not most, RIAs don’t want to spend $3,000 a year on the technology, which is about what most e-mail compliance tools cost.

In addition to being frugal, the independent advisor channel is a major challenge to tech vendors because of its fragmentation. The market is segmented between registered reps affiliated with B/Ds and RIAs.

The independent B/Ds generally don’t buy technology for their reps. They usually sign deals to market software for “approved” vendors in exchange for discounts for their reps, or for a cut of the sales by the technology company. For instance, most independent B/Ds leave it to each rep to pick from two, three, or more planning or CRM applications. Each rep is essentially buying directly from the tech companies, and the tech companies are selling and servicing one user at a time. There are some B/Ds that have done some enterprise-level technology adoption, but for the most part only a handful of B/Ds cut deals with vendors to buy an application enterprise-wide for all their reps because their reps are independent and want to choose their own technology.

The RIAs, meanwhile, are totally independent. Their technology choices are not limited to the approved tech vendors selected by the B/Ds. Consequently, the RIAs are using different combinations of software products. Providing customer service to RIAs who are each unique in their business processes, software applications, and hardware is not easy for a tech vendor.

With that huge caveat in defense of technology companies, let’s look at some of the problem areas that tech vendors will need to address in coming months. Keep in mind, the criticism does not make the companies mentioned bad. All of the companies have problems.

In all fairness, I have to admit that my own company does not have a perfect record either, which makes me sensitive about criticizing other companies. When I asked more than 100 advisors for their greatest technology frustrations, I actually had one tell me that my own company was on his list. My company, which hosts e-mail accounts for hundreds of firms, intermittently bounced some e-mail sent to about 50 advisory firms for several days, so I have felt firsthand the wrath of advisors frustrated by a technology vendor, and it was a humbling experience. With all this in mind, let’s look at some of the major categories of advisor technology and where improvement is needed.

Portfolio Management Software. This is the key application on an advisor’s desktop because it contains all of the investment account data she needs to run her business. In the independent B/D segment, the dominant player is Albridge, which successfully sold into dozens of broker/dealers over the past five years, and is likely grooming itself for an initial public offering. With the ugliest of technical issues of pulling in account data from different institutions behind the company, Albridge’s prospects for dominance over the coming five years seem good.

Right now Albridge has little serious competition in going after large independent B/Ds. The only company on the horizon targeting this niche is Investigo. While Investigo has had some success in the smaller B/D market, only Albridge has the scale to take on the largest independent B/Ds that have thousands of reps.

“The data issues with Albridge are not as big as they used to be,” says an executive at one of the large independent B/Ds, who spoke on condition of anonymity. The executive says that reconciliation of client accounts by Albridge has improved in the last two years but “probably will always be an issue that won’t go away.”

Where Albridge is deficient, according to the executive, is in creating customized reports. Reps want to be able to change the fonts and format reports in ways that are more attractive. Albridge, according to the executive, will make more template reports for reps to choose from, but only at a price. Because of their dominance, the executive says, “Albridge has become more money-centered than client-centered.”

Investigo offers greater customization of reports right now, but adding tens of thousands of transactions daily to the Investigo system could pose a challenge to its capabilities, according to the B/D executive. If Investigo continues to grow by serving smaller B/Ds, larger B/Ds will eventually feel more comfortable about migrating to Investigo.

The RIA segment of the market also suffers from a limited number of established portfolio management software (PMS) vendors. Two companies dominate the field: Advent Software and Schwab Performance Technologies.

While Advent Axys is built on database technology from the 1980s, the software is reliable and makes accurate performance calculations. Despite its strengths, Advent has gained a mixed reputation with advisors. “Advent is arrogant and arbitrarily raises my fees by 15% every year,” says Richard Del Monte, of Del Monte Group LLC in Alamo, California. “But who is there to replace them?”

Meanwhile, Schwab’s PMS program, PortfolioCenter, is dogged by concerns over Schwab’s ownership. Four years ago, Schwab said it would not sell the new licenses to its PMS system to advisors unless they custody assets at Schwab. Schwab has since backed away from that position. However, the announcement, along with other aspects of Schwab’s relationship with advisors, has created distrust that persists among some.

Although Schwab is still by far the dominant custodian to small RIAs serving high-net worth individuals, it is in an awkward position as a technology vendor. Some advisors who clear through Schwab say they fear depending on Schwab for technology as well as custody services, despite the fact that company has done nothing in the last few years to leverage its technology in a heavy-handed manner. Meanwhile, some advisors who do not clear through Schwab remain reluctant to buy its PortfolioCenter because they fear that someday Schwab could cut them off.

While the two biggest PMS vendors were in recent years hobbled by these issues, several startups have appeared and are trying to build viable alternatives for RIAs, including Interactive Advisory Software (IAS) from Optima Technologies, AssetBook from Major Technology Resources, and PowerAdvisor from Cornerstone Revolutions. dbCAMS, a longtime PMS vendor, along with Captools, continue to be viable alternatives, but these companies simply are not mentioned all that often by advisors shopping for PMS software.