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Schwab's Tech Pivot Is All the Buzz, but …

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T3 conference organizer Joel Bruckenstein broke the big news last week that Charles Schwab’s tech team has made a big shift in its strategy: Its next-generation portfolio management product, PortfolioConnect, will not be multi-custodial as it had planned.

Instead, the firm — which has $1.8 trillion in advisory assets and works with about 7,500 independent advisors — will invest in its core custody platform and also fund improvements to PortfolioCenter, the current multi-custodial portfolio management and accounting tool. Plus, it will financially support third-party integration work.

This week, tech vendors at the Orion Ascent National Conference in Miami Beach, Florida, are reacting to the news and what it means for their businesses and advisor clients. “They are happy and ecstatic,” according to Tim Welsh, head of the consulting group Nexus Strategy.

“It’s about the tech component for [Schwab’s] portfolio accounting system,” Welsh explained. With this opening up, he explains, traditional vendors like Orion, Envestnet Tamarac, Black Diamond and others are set to benefit.

But smaller firms, like Panoramix and Capitect are stoked, too, by the change. “All the third-party vendors [at Orion Ascent] are excited to see Schwab open up,” he said.  

While rival TD Ameritrade has relied on vendors to drive innovation for some time, “Schwab now is going to  do so,” according to the consultant, who led business consulting services for Schwab Institutional from 1999 to 2005. For instance, it will work with application programming interfaces (or APIs) made by outsiders.   

“We are actively developing our APIs and leveraging those for our proprietary platform and for third parties,” said Andrew Salesky, senior vice president of Schwab’s Digital Advisor Solutions, in an interview. “For example, we’ve been participating in the Orion hackathon event at the Ascent conference.”

Pros, Cons

For Bruckenstein, Schwab’s “revised strategy” is “a net positive … based upon the feedback provided by their advisors,” he said in last week’s blog. In addition, it will likely “reverberate throughout the advisor tech industry.”

The tech guru also points out that if Schwab had released a multi-custodial solution, the move “would have put competitive pressure on Black Diamond, Orion, Tamarac and others.”

For Welsh, though, Schwab’s move away from a multi-custodial, cloud-based portfolio resource represents the firm “throwing in the towel” on such initiatives. Spending on the effort is estimated to have been about $50 million. 

According to Salesky, though, Schwab’s multi-custodial efforts and spending have not been for naught: “The development effort of PortfolioConnect has had multiple benefits, including support for and the launch of Schwab Intelligent Portfolios and Institutional Portfolios, and both of our platforms benefit from the infrastructure created for PortfolioConnect,” he explained.

Plus, the past several years of this development work have led to “the deep integration of PortfolioConnect into our custodial experience and the elimination of daily data downloads and reconciliation, which will be made available to our custodial clients for no fee,” the Schwab executive explained.

Meanwhile, rival Fidelity is spending $1 billion on its comparable project, Welsh points out. “Any big RIA does [multi-custodial work], and small ones do, too,” the consultant said. “This is table stakes, and [Schwab] is essentially saying that it can’t deliver.”

As a result, Schwab likely could “lose market share” to other vendors, Welsh adds. “It’s not a good sign, when you’re not will to invest in [certain parts] of your platform.”

In contrast, TD Ameritrade, Pershing and Fidelity are “doing great things with technology — look at the headlines at their conferences,” he said. “Why not adds some bells and whistles, too?”

Sit tight, Salusky says. Schwab will share more information on PortfolioConnect before its yearly Impact conference, set for late October in Washington, D.C.

“We’re looking at general availability … in the first half of next year,” the executive said. “There’s some early access, … which is providing feedback and allowing us to continue to enhance the platform as we prepare for the launch in 2019.”  


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