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.

To be sure, RIAs have chosen not to work at a financial giant that would provide their office space, staff and technology systems. Since they make a conscious choice to build their own businesses, RIAs tend to have a penchant for doing things their own way.
Consequently, many RIAs are uncomfortable about allowing their businesses to rely on a custodian for technology solutions as well as clearing services and have been skeptical in the past of custodian-provided technology solutions. In telling RIAs which apps they must use in their practice to optimize their relationship, a custodian runs the risk of being perceived by RIAs as using strong-arm tactics.

Despite the tension and controversy that might accompany an effort by custodians to steer their RIA clients toward a particular technology solution, Fidelity, Schwab and Pershing have built elaborate advisor workstations integrated with a limited number of advisor apps.

For example, Fidelity's Wealth Central platform is integrated with Advent PortfolioExchange for portfolio accounting, NaviPlan for financial planning and Oracle CRM. Pershing Advisor Solutions' NetX360 program has integrated with BlackDiamond Reporting for portfolio accounting, Redtail Technology for CRM and MoneyGuide Pro for financial planning.

All three of these custodians say they plan to integrate with more applications, but building each interface one by one is different from providing access to vendors through an API, as TDAI has done.

"We interviewed with advisors and they were adamant about wanting to use applications they currently use in their firms because they have spent money and time on training their staff to use those apps," says Jon Patullo, TDAI's director of technology production. "They don't want us to dictate what system they must use to benefit from integration with our custody platform. Our approach is different because it is consistent with the flexibility advisors want."

By distributing an API telling vendors how to request data on its custody system, TDAI enables many tech vendors to simultaneously develop interfaces incorporating its account data and enabling innovation faster.

By opening its database to many tech vendors, a custodian supports the growing trend toward specialized advisor apps, powerful tools that fulfill just one specific mission for an advisor but does that one thing very well.

For example, LifeYield, a two-year-old company, optimizes income streams for advisor clients using a proprietary algorithm developed by Paul Samuelson, LifeYield's co-founder and chief investment officer. LifeYield's narrow focus-telling advisors which assets should be located in taxable versus tax-deferred accounts and which should be sold first to generate income-adds some new ideas in the burgeoning category of rebalancing software. While LifeYield is focused on enterprise sales to independent broker-dealers and their registered reps, it could integrate fairly easily with a custodian that opens its platform through an API, providing more choice to RIAs.

LifeYield is just one example of a bevy of specialized apps coming to market that aim to do one thing great. These specialized apps provide a way to achieve the holy grail of independent advisor technology: the "silver bullet," a single app for managing an advisory practice.

The silver bullet, a term I coined in 1998 to describe the elusive all-in-one advisor desktop, is now achievable. APIs enabling an advisor's data to pass freely from one app to another allow an advisor to knit together the apps constituting his own personal silver bullet.

While many advisors thought that the all-in-one solution would be the creation of a single app, a few efforts at building silver bullets have not met with much success. Invariably, an advisor finds one major component of most all-in-one apps to be wanting.
Ironically, deconstructing the all-in-one app by stitching together an advisor's dream team of apps with Web services is now the clearest path for an advisor to build his own silver bullet.

Meanwhile, the advent of apps focused on performing one task-proposal generation, account aggregation, client portals and income distribution optimization-fosters an advisor's goal of designing the right blend of apps for a practice. Publishing an API that can be used by specialized apps is probably the best way a custodian can support the boom in innovation by these small-tech vendors developing sophisticated new tools that promote efficiency and deeper analytics.

Though the TDAI API creates a framework enabling many software vendors to access its data, TDAI is requiring vendors to fill in a security questionnaire comprised of 2,700 questions requiring yes or no answers.

The questionnaire is based on a standardized system created several years ago by BITS, a Washington, D.C.-based financial services technology organization. As part of a Financial Institution Shared Assessments Program, BITS created a standardized information-gathering approach for financial services providers to use in their information security audits, aiming for a faster, more efficient and less costly way of conducting rigorous and comprehensive security, privacy and business continuity assessments.

It takes an experienced IT professional about 40 hours to complete the security questionnaire. It's not hard to imagine that a small-tech vendor would not have the IT resources to answer the questionnaire or to provide answers to TDAI's satisfaction. So while the API should offer more vendors the ability to access TDAI's back office, the security requirements could limit the number of vendors able to surmount TDAI's hurdles.

Still, Patullo says he expects the release of the API in mid-December to spawn some integration with CRM apps by the time of the TDAI annual conference in early February. "We're managing several CRM relationships and have a couple of dozen different workflows we think advisors will want to leverage," says Patullo.

By embedding in CRM apps workflows specifically suited to TDAI's back-office systems, procedures such as account transfers can be systematized by RIAs.

Patullo says the initial release of the API will provide tech vendors with data on balances, positions and transaction history as well as alerts on activities related to cash management, opening accounts and margin calls.

A second release of the API will provide access to additional data and enable RIAs to push data from the apps they use to TDAI's dashboard for advisors, VEO, creating a two-way loop of streaming data. Thus, a portfolio management application will be able to initiate a trade on VEO, and the advisors will not need to upload a spreadsheet with the trade order or use a Web app to execute the trade.

The Web has forced unprecedented transparency on companies and governments. Google makes it easy for prospects to research your background, Wikileaks has exposed U.S. government secrets, and data about the fees and performance of 401(k)s is now being published on the Web. It will be interesting to see if TDAI's transparency compels other custodians to follow suit and make it easier for advisors to use their preferred suite of applications to move data to and from their custodians.

For the record, my company has relationships with all four of the custodians mentioned in this article, and this column will probably not endear me much to TDAI's rivals. But they understand that my ultimate obligation is to serve my readers, and they will undoubtedly have reasoned responses explaining why their strategy is best for the RIAs they serve.

Editor-at-large Andrew Gluck, a veteran financial writer, owns Advisor Products Inc., a marketing technology company serving 1,800 advisory firms.