Lou Stanasolovich is no computer geek, but he's not afraid of technology, either. "I read a lot to understand the big-picture issues and drive my tech staff crazy asking questions," says the president of Legend Financial Advisors in Pittsburgh. Despite his forward-thinking attitude and specialized staff, Stanasolovich still finds himself hand-entering huge amounts of data into his various financial-planning and portfolio-accounting applications, wondering if technology wasn't supposed to make life easier after all.
Looking at integration programs developed for other industries, many advisors are starting to question whether they are living in the Dark Ages. "Right now, if you want to get an integrated financial-planning package, you can go to several Web-based firms, only to find that they have maybe one or two good programs," Stanasolovich says. "We still end up using seven different programs, none of which talks to each other." If he can't get full integration, at the very least Stanasolovich would like to see these programs migrate to the Web, open up their architecture and get married somehow, at least on the level of exportability.
Stanasolovich is not alone in his frustration. As competition increases and profit margins thin, advisors know that technology holds the key to efficiency, and that the name of the game is working smarter, not harder. Spending time on data entry just doesn't seem very smart. Yet, for a variety of reasons, it's unlikely that matters will change anytime soon. Although numerous advances have been made, at this point integration does not make sense for the software vendors that target advisors-and maybe not even for advisors themselves.
For one thing, the universe of independent financial advisors is so small that development costs are prohibitive for most software companies. "Sometimes people in this industry think, 'I can get Microsoft Office for a few hundred dollars, so how come my portfolio-management system costs so much?'" remarks Steve Winegar, marketing director of Performance Technologies, a wholly owned subsidiary of Charles Schwab & Co. and producer of Centerpiece portfolio-accounting software.
Yet with the universe of independent financial advisors hovering around 10,000 to 12,000 firms, according to Cerulli Associates, development costs on a per-client or per-prospect basis are extremely high. Even counting all RIAs, who number about 25,000, the market is small, compared with other professions like accounting, in which development costs can be spread across many more users.
Yet the major obstacle to integration is not even the small size of the market, Winegar says, but the lack of uniform standards. "There are so many different products in use that if we tried to create an integrated system, we would spend all our time building and maintaining interfaces." His company prefers to point out its service record and reliance on providers like Morningstar, from which it can get direct feeds, as well as focus on product enhancements, such as front-end Web functionality, which should be available later this year.
Even if all software companies migrated to the Web, which many claim they will do in the next two years, that would not solve the problem of integration, which is fundamentally an issue of standards. "Open architecture remains a problem with systems, whether they are Web-based or not," says Rob Fletcher, chief investment officer with Shine Investment Advisory Services in Englewood, Colo.
He says several systems, including StockTrib for performance measurement and attribution; Mobius for manager search and evaluation; and Xigo, a stock-tracking and -alert software that integrates with portfolio-accounting programs, are already online or forthcoming. But that does not mean the data they contain can be easily exported, for the simple reason that no uniform definitions exist. And frankly, despite their complaints, most advisors would abhor the thought of sacrificing intimacy with their clients for simplified standards.
"Where advisors are running into trouble is not so much the heavy-lifting account data, such as cost basis and current market value, where standards already exist," explains Dave Loeper, CEO of Financeware.com in Richmond, Va. "Everybody pretty much supports the importing of that kind of data. But look at other key financial-planning terms, like savings. Advisors define the term differently, depending on their style of doing business and interacting with their clients. Is it qualified or nonqualified? Monthly or yearly? How do you define start and end age, and is it inflated or not?"
A couple institutions are chasing the idea of one all-encompassing suite of desktop advisor tools, but Loeper considers that a bad business decision. He believes that no one application or provider would be able to accommodate the personal preferences of advisors. Financeware.com does not see itself in competition with software companies who are potential partners, but it nevertheless would not cast its lot with the integrators at the financial-planning level.
Instead, Loeper's company has chosen to focus on integration at the advisor-client level. "Integration in and of itself is not a value unless real benefits can be communicated to clients," he says. Loeper notes that to achieve true integration at the financial-planning level, advisors would have to lobby for a massive industrywide definition of standards, and he considers that unlikely.
Fletcher agrees. "Financial planners and investment advisors tend to be a diverse group with varied needs and strong opinions," he says. "Consequently, one size doesn't fit all." Fletcher considers the independence and strong opinions of advisors to be the major obstacle to standardization, but he notes that other factors conspire as well. "The more open and integratable a system is, the more vulnerable it is to replacement," he says, giving software developers a vested interest in "locking in" users to their systems.
Another huge issue, he says, is who owns the data. "If I use a Web-based portfolio-accounting system, and at some point in the future, I decide to change to another system, how do I get the data moved to the new system? Do I have rights to that data, or am I trapped?" This is of particular concern as more advisors move toward outsourcing their operational functions and suddenly are faced with the twin devils of ownership and security.
Yet financial-planning software companies will have little excuse for neglecting these concerns if they wish to remain competitive. In general, the world of technology is moving toward open architecture through the use of XML (extensible mark-up language), a self-defining nomenclature that allows files to be exchanged at the database level. The use of XML has already opened a new transparency in the way many companies do business. In fact, Stanasolovich believes advisors will begin to demand transparency, and software firms will have to indicate details up front, with terms decided on a contract basis.
In fact, that has already started to happen, especially with those applications like portfolio-accounting software, for which consistent standards do exist. For example, Centerpiece recently purchased Junxure (formerly BAM), which will enable advisors to query Centerpiece directly from their contact-management software. One advisor who will use Junxure is excited by the developments at Centerpiece because she had been questioning Schwab's commitment to Centerpiece.
Winegar admits that the company had not offered much in the way of progress in recent years due to continued costs associated with moving its platform to Windows in 1998. That will change, he says, as the company moves toward an open-database structure. Last month, the company planned to introduce a service that would enable advisors to tie their Web servers directly to the Centerpiece server via XML feed. That brings up the ownership issue again.
William Penney, a trading-solutions and project manager at Advent Software in San Francisco, is categorical: "The data belongs to advisors. We cannot hold our customers hostage." Although open standards are a double-edged sword, in that they erode proprietary control for software companies, he says, "they make it easier for advisors to use our products and give them more incentive to become customers in the first place." Advent recognizes the demand for portability and has formed an alliance among providers, including Ibbotson and Morningstar, to optimize data exchange according to an agreed-upon set of standards. Conceivably, advisors could do the same among themselves if they wished to have more weight with software companies.
Although these advances would save time, they wouldn't eliminate the need for hand-entering data. The fact is most advisors who handle sophisticated, high-net-worth clients encounter too many variables and exceptions to completely streamline every process. Full automation would most benefit banks and wirehouses that offer limited planning services or advisors who serve an extremely homogeneous clientele. In fact, advisors might balk at true integration if it would mean sacrificing the current level of customization.
In the meantime, advisors should streamline those areas-portfolio accounting and client presentation-in which greater integration can be achieved. Does that mean advisors have to resign themselves-or their staffs-to carpal tunnel syndrome? They can probably decrease their elbow grease, but they're unlikely to eliminate it anytime soon. The market is moving toward integration, but it will take longer than most advisors would like.