In what could become a powerful factor influencing technology development for RIAs in 2011, TD Ameritrade Institutional is opening its custodial data to technology vendors.
TDAI has released an application programming interface (API) for its custodial services, giving access of TDAI's back-office data to technology vendors supporting RIAs. TDAI thus becomes the first of the four major custodial firms to open access to its custodial system to tech vendors by using an API.
Wikipedia defines an API as a set of rules that a software program can follow to access and make use of the services and resources provided by another program. An API serves as an interface between different software programs and facilitates their interaction, similar to the way the user interface facilitates interaction between humans and computers. "The practice of publishing APIs has allowed Web communities to create an open architecture for sharing content and data between communities and applications," Wikipedia says. "In this way, content that is created in one place can be dynamically posted and updated in multiple locations on the Web."
The TDAI API instructs advisor technology vendors on how to access specified data elements in TDAI's custody platform and stream them securely into their apps. It tells programmers the "calls" or requests their programs must make to retrieve data about accounts held at TDAI. For example, the API specifies how to call positions, balances, and transactions at TDAI, enabling a CRM, client vault or other advisor application to display that data in its application.
The TDAI data can also be used in calculations and to populate databases in advisor apps. A financial planning app could use account data from TDAI to update clients' investment forecasts automatically on demand 24/7, for example, and a CRM application could use data about TDAI account owners to populate its list of clients and accounts.
In distributing the API to vendors, TDAI essentially empowers advisor tech vendors to write applications using its custodial interface. Consider this: It was an API from Apple that spurred creation of an app store for the iPhone. The API enabled independent programmers from all over the world to write programs for the iPhone and iPad. Similarly, Salesforce several years ago created documentation for integrating with its architecture to enable other apps to leverage its CRM, which help put the company on a path toward becoming the world's most popular CRM.
The move by TDAI could be a major development for RIAs because other custodians have not opened their systems in the same way and given advisor apps the same freedom to integrate. For instance, Schwab Institutional, as part of its "Intelligent Integration" initiative, has chosen three CRM apps with which it will integrate-Junxure CRM, Salesforce, and Microsoft Dynamics. Popular CRM systems targeted to advisors, such as Redtail Technologies, AppCrown and Ebix CRM, which are used by about 150,000 independent advisors and their staff, are not included in Schwab's integration plans.
In contrast, TDAI can provide any tech vendor its API, and the tech vendor can write code to access the data it wants to use in its application.
With about $135 billion in RIA assets, TDAI runs third behind Schwab Institutional, which custodies $610 billion. Fidelity, No. 2 in market share among clearing services targeted to RIAs, has about $460 billion in RIA assets. Pershing Advisor Solutions is No. 4 with about $80 billion in RIA assets.
Like Schwab, both Fidelity and Pershing have selected the advisor apps with which they will integrate their custody platforms.
The selection of apps to be integrated by a custodian is a sensitive issue because custodians all market their platforms to RIAs claiming to support "open architecture." Since independent advisors are committed entrepreneurs, open architecture is highly valued. Tech vendors often describe selling technology to RIAs as akin to "herding cats," a reference to the independent character of many owners of RIAs.