Portfolio management software isn't as scary as it used to be.

Gone are the days when advisors worried about being trapped by a program. The dominant apps, Schwab PortfolioCenter and Advent Axys, have held on to their dominant positions. However, a few apps have risen up to challenge that dominance, and it's now easier to move away. This report covers two fast-growing PMS solutions, Orion Advisor Services and Black Diamond Reporting, as well as a brand new entrant, FinFolio.

The challengers are very different from the established leaders. They have not been burdened by legacy technology. Nor have they had thousands of firms using their systems in the past, which can hamper change and stymie improvement. Not only are they different from their elder competitors, they're also different from each other.

Black Diamond Reporting. This software is growing the fastest of the newer PMS providers. CEO and founder Reed Colley says BDR now has 170 clients, double the number 18 months ago. The system is now used to manage $35 billion in assets, and BDR has 44 employees.

Unlike traditional desktop PMS systems, BDR bundles service with a Web app for advisors to manage portfolios and report on performance. So you're not just buying software, you're buying a service bureau that will download all your transactions, reconcile your positions against custodial systems and scrub the data in case there are any errors.

About 40 of the advisory firms using BDR's platform are managing individual securities, Colley says, while 24% are primarily outsourcing to separate account managers. The remainder are predominantly managing money in mutual funds and ETFs. BDR's ideal advisory firm client manages $300 million on average, and $80 million at the least.

Colley says a new version of the program will go into beta at the end of December and the beta period will probably last about six months. It is a significant overhaul of the BDR interface and will promote usability. The new version of BDR is called "Blue Sky" because it's like a blank canvas on which you create your own way of looking at your portfolios. "It's like iGoogle meets iPhone and Salesforce," says Colley.

While Colley was not prepared to show the new interface yet when I interviewed him in mid-November, he says it features the now-familiar drill-down capabilities of more modern interfaces in the main body of the screen, allowing you to drill down from a portfolio to an account and then to individual transactions. This is a big improvement over the desktop apps, which require you to run a report to see data at different levels.

The big new improvement to the interface is in little content windows called "Sky Boxes" and pre-customized report pages, called "Sky Pages." Sky Boxes are small snippets of data and report parts. "We will launch with about 20 Sky Boxes and hope to have a library of 100 Sky Boxes by the end of 2010," Colley says. Each user in a firm can choose from the library of Sky Boxes which ones they want to display on their dashboards. The boxes appear on the sides and bottom of your page.

Depending on your role in a firm, your Sky Boxes could include your last five transactions, a pie chart graphing target versus actual asset allocations, a snapshot view of the last portfolio you looked at or live prices on stocks you want to watch. Later next year, Colley says a Sky Box will display alerts about positions out of balance with their target allocations.

In addition to the Sky Boxes' snapshot views of assets you managed, Colley says Sky Pages will make lengthier pre-configured reports available on demand. A Sky Page will provide a comprehensive report on the tax status of all portfolios, presenting a view of all short-term gains and all long-term gains, and then show unrealized long and short gains as well. Another Sky Page may include a variety of modern portfolio statistics, giving you a comprehensive report showing alpha, beta, the Sharpe ratio, R2 and downside volatility.

BDR charges based on assets you manage on the system. It costs 1.5 to 2.5 basis points depending on your volume, Colley says. The minimum contract is $20,000 per year and the setup costs 15% to 20% of the annual fee. For example, if your firm manages $200 million, you'll pay 2 basis points and a $6,000 to $8,000 setup fee.

Two new trends that came up in interviewing Colley: a move to provide business metrics and business intelligence for users of BDR and taking direct feeds from held-away accounts. Colley says BDR will begin providing statistics about how firms can better manage their business, and he was the second CEO of a PMS vendor to talk about this. (See my report on Orion Advisor Services below.)

In addition, Colley says about 30 of the firms using BDR are now downloading direct feeds to report on held-away assets. Advisory firms in recent years have been using account aggregation systems to present a consolidated report to clients. ByAllAccounts, an account aggregation app, has had great success in the last two years in downloading data into portfolio management systems, thus enabling advisory firms to report on assets it does not manage, such as 401(k)s or assets being managed by a broker at a wirehouse or regional brokerage. Colley says that in addition to using ByAllAccounts, 30% of BDR clients are using direct feeds written by BDR to pull in data on assets managed by someone else. A direct feed from Merrill Lynch, for instance, is likely to contain data that is reconciliation-ready and likely to be more reliable than feeds used by account aggregation firms.

FinFolio. This application has been created by Matt Abar, best known to advisors for his previous PMS venture, Techfi Inc., which soared to prominence in 1999 before Abar sold the company to Advent Software in June 2002 for about $23 million (famously netting Abar about $12 million).

When we last checked in with Abar in early 2009, he was busy supervising development of FinFolio from his home just outside of Denver, with several full-time engineers pounding out code in a spacious room next to his den. While he is a few months behind schedule, Abar says he is now planning a January release.

FinFolio is obviously different from BDR or Orion Advisor Services because it isn't bundled with a service bureau that downloads and reconciles transaction data. FinFolio will not be available as a hosted application, at least not initially. Having learned from his previous PMS startup, Abar wants to avoid being distracted by a service bureau business and wants to stay focused solely on developing the PMS app. He says he'll revisit the idea of a hosted version after the system is built.

FinFolio is also different because it runs on a firm's network server and then can be exposed to the Web by a firm's IT administrator. With pricing starting at $10,000, and the annual cost also in that same area, Abar is determined to create a program for more sophisticated wealth management firms with IT resources to run the FinFolio system on an internal network. Firms will be able to expose it to the Web to allow for remote users and even client access.

Abar is not precluding offering a hosted version if demand is there. He says he will likely partner with a service bureau that's already working with advisors using other PMS apps and that kind of arrangement will, thus, provide a hosted solution comparable to Orion and BDR.

FinFolio runs on either a Web browser or as a desktop application, which means some users may access it remotely via browser while others can use it internally on the network with a desktop interface. Either way, the interface looks the same.
Abar has again leveraged Microsoft development tools and interface conventions. The interface looks just like a Microsoft Office program, complete with a ribbon customized for FinFolio's functions.

Abar has focused attention on creating a reconciliation system that is intelligent. "Most systems check share balances against custodial balances, but that can mask errors," he says. "Printing and collating your performance reports is only a small part of what a PMS system must do, and you need above all to ensure your reports are accurate." Beyond the normal reconciliation against a custodial system, Abar says FinFolio has embedded eight other checks on data.

For instance, Abar says that if a dividend reinvestment comes into the system as a purchase, it would not be picked up as an error in many systems because checking the balance against the custodial system would not reveal the mistake in accounting. Abar says the checks embedded in FinFolio will pick up these problems.

FinFolio reports come in six pre-designed formats. One design has a very modern look, while others are more corporate. Your firm can choose from any of the six designs and customize it to your colors. By the time the software is launched in January, Abar says he expects to have 50 different types of reports that can be used in the pre-designed templates. You can set a different time period for tables and charts and pick different charts and tables to appear in your reports, and you can also change copy in text boxes accompanying tables and charts in the reports. You can also run a mail merge to combine a cover letter with the pre-formatted reports.

FinFolio comes with a simple trading tool. It can be used to run trades against model portfolios of securities. It does not now rebalance portfolios based on allocations to asset classes, but can rebalance against a model portfolio based on securities selections.

With a half dozen firms now running the system in a beta test, Abar says FinFolio initially will provide interfaces with DST, Fidelity, Pershing, TD Ameritrade and Schwab, but he expects to add an interface a month beginning in January.

Orion Advisor Services. Founded ten years ago, Orion manages and reports on $28 billion of assets on its platform and it serves 185 firms and institutions. The company started as an outgrowth of CLS Investments, a separate account manager with about $2.9 billion in assets and 40,000 accounts. When CLS could not find a vendor to handle portfolio management and reporting the way it wanted, its owners created Orion. Eric Clarke, the son of CLS Investments founder W. Patrick Clarke, is the president of Orion, which has 95 employees.

The average advisory firm on the Orion platform manages $250 million in assets, and Orion's target client is a separate account manager or an RIA with multiple locations and numerous reps. Like BDR, Orion has seen huge growth in its business recently. Clarke says over the past 12 months, the number of client accounts administered has shot from 250,000 to 350,000. The great majority of these accounts are established firms and not part of the steady flow of approximately 200 new RIAs reportedly being established monthly predominantly by defections of brokers from regional brokerages and wirehouses.

About a year ago, Orion smartly built business intelligence and metrics into its system. The Orion Advisor Scorecard is a benchmark for your business relative to other advisors serviced by Orion. Orion takes a representative sample of its clients and uses their data to show you where your firm ranks in key categories of AUM, growth and retention, and performance. For instance, a firm using Orion for reporting receives a Scorecard showing its change in Net New Accounts and how that compares to the average advisory firm using Orion. You can also see your firm's portfolio performance relative to the average Orion firm.

Orion's report writer makes it easy to customize reports and is very slick. The report writer contains 28 graphical modules and you drag and drop the graphics onto your report page to customize your reports. For example, if you want to create a portfolio valuation report for your clients, you can choose from many graphical modules that might be best to put on the top of the page.
Maybe you want a portfolio composition graphic showing pie charts of the asset classes in the portfolio and another pie chart showing the asset styles. Or you might choose a "mountain" chart showing net investments versus appreciation. You can store the reports you want for each client and use that report set over and over each quarter.

With the Orion trading module, you can assign clients to a model portfolio and rebalance their accounts against that model. A pending trade-order list is generated and you can confirm that list against the trades that come back from your custodian. Advisors do not trade fixed income on this system and it is now being upgraded to enable options trading and tax efficiency capabilities.
In December, Orion will begin supporting the FIX protocol for trade execution. That will enable trading based on real-time prices for equities and ETFs. "That's a huge improvement," says Eric Clarke, Orion's president.

Orion bundles its technology for portfolio management and reporting with a service for downloading and reconciling accounts. You pay using the following pricing schedule: zero to 99 accounts for $90 per account; 100 to 299 accounts for $80 per account; 300 to 999 accounts at $70 per account; and 1,000 or more accounts at $50 an account. For advisories with fewer than 99 accounts, a minimum annual fee of $10,000 is billed quarterly in arrears at $2,500.

Orion has the best developed system to integrate with other apps that I've seen. It dynamically changes the documentation used by outside developers whenever Orion changes the code in its program. This system is going to make it easier for Orion's developers to integrate with other apps.

Service is the key aspect to watch for in selecting a PMS provider like Orion. Clarke says 94% of Orion clients' calls are answered within two hours. "We assign each client their own internal reconciliation team so they always have someone managing their data who operates as a remote member of their team," he says.

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