Page 15 - Investment Advisor January/February 2022

Schwab and TD Ameritrade, about half a ued and beneficial innovation in some 5. UNCOMMODITIZING INVESTMENT
decade. This is the bizarre trap that two- of the core technologies that enable MANAGEMENT
thirds of the industry finds itself in as the independent advisors to efficiently run Today, many advisors are de-empha-
tortuous delays in merging the largest their businesses, no matter how small sizing investments as part of their
custodian platforms linger late into 2023, or large. offering as it becomes commoditized,
with some estimating well into 2024 for Just as business technology operat- and instead focusing on financial
a deal that was announced in 2019. ing systems have evolved rapidly over planning and wealth services as their
Will the 7,000-plus TDA advisors end the years, from DOS to Windows to value proposition.
up with a good experience becoming cloud-based, now we are on to the next The good news for investment-
part of a huge entity, or will they be generation with cloud-native com- focused firms, however, is that new
shunted into an impersonal call cen- puting. According to technologists, rebalancing and trading technologies
ter and DIY website corner that will cloud-native technologies empower are enabling advisors to bring differ-
handicap their business? At entiation back to investing.
this rate, it will take a couple For better or worse, the continued Direct indexing, for example,
of years to find out. In the enables firms to customize
meantime, service issues are aging of RIA founders who lack and personalize portfolios by
increasing on the TDA side succession plans (only one-third holding the underlying secu-
as Schwab struggles with the rities to mimic a separate
quixotic decision to continue of the industry has one) is forcing account structure to track an
to spend resources for at least them to consider external sale index or adhere to a model
the next two years on a com- portfolio to accommodate
pany and brand that they will options. The good news is they personalized constraints and
eventually shut down. There is opportunities.
no return on that investment. have more choices than ever. The benefits of this type of
All of this opens the door for technology bring up the ability
new custodian competitors to enter the organizations to build and run scalable to efficiently deploy tax-loss harvesting,
scene and compete for their share of the applications in modern, dynamic envi- accommodate a large legacy position
growing RIA industry. Most notably, a ronments that utilize the latest soft- or manage to an ESG mandate without
brand-name Wall Street giant is already ware development tools such as atomic changing the risk profile of the portfolio.
striking fear in the hearts of custodian design, containers, service meshes, This means that for the tax-loss har-
executives everywhere. Goldman Sachs, microservices and APIs to deliver speed vesting opportunities alone, portfolio
fresh off its strategic acquisition of the and agility in developing the latest managers can deliver a significant “tax
mega RIA-firm United Capital, its FinLife wealth management applications. alpha” that can more than make up for
technology platform and the remnants of Particularly in bridging legacy sys- their added fees for actively managing
FolioFn, combined with their world-class tems with multiple-data sources and the portfolio.
capital markets and asset management the latest applications, cloud-native To show the impact that direct
operations, has all of the components to approaches will enable advisors indexing is having in shaping the
become an instant player overnight, par- and firms to create their own “dig- industry going forward, consider
ticularly with larger RIAs. ital ecosystems.” By leveraging this the dozen or so acquisitions by large
That said, other custodian com- approach, firms can create technology asset managers scooping up boutique
petitors, along with a handful of tech- they design and host themselves. This direct-indexing shops for their tech-
enabled front-ends with a third-party allows them to own their own data nology and expertise — most notably,
custodian back end, are all gearing up to and integrate the systems and tools Vanguard’s industry-defining acquisi-
source disenfranchised advisors, unhap- that best fit their value proposition, tion of Just Invest.
py at this new hegemony of the large customized to their needs.
custodian players. Essentially, firms are able to build Timothy D. Welsh, CFP, is president, CEO and
their own “app stores” that they con- founder of Nexus Strategy LLC, a consulting
Adobe Stock Without a doubt, one of the biggest bring them together in an integrated firm to the wealth management industry and
trol and select, and they can seamlessly
4. CLOUD, MEET CLOUD NATIVE
can be reached at [email protected] or on
framework and environment.
trends in the industry is the contin-
Twitter @NexusStrategy.
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