Fidelity and Integrated Decision Systems (IDS) expect to begin offering a comprehensive, highly sophisticated institutional portfolio management, reporting and order generation system platform for advisors before the end of this year, with full rollout scheduled for the first quarter of 2005.

Integrated Decision Systems (www.idsnet.com) is new to the RIA marketplace, but it has been servicing broker-dealer firms and prime brokers for 22 years. Its platform currently services more than $4 trillion in assets under management. IDS is headquartered in New York; their technology and support center is located in Los Angeles.

The Fidelity/IDS multi-custody offering will be built on an application service provider (ASP) model, allowing advisors to access fully reconciled client data via the Internet. IDS will host the application and the data. The portfolio management/reporting module and the trading module will share a common database. The system is driven by a fully relational database, so each piece of information can be queried and reported upon.

The plan is to fully integrate the IDS system with the Fidelity custodial system. When this occurs, single data entry will become a reality-orders generated within the IDS system will flow seamlessly into the Fidelity platform, and fee deductions will also be automated. The service will download and reconcile accounts held at third parties (they expect all major custodial interfaces to be ready at launch), but full integration with other custodians does not appear to be in the cards right now.

With Fidelity, once you integrate there won't even be a download. With other custodians, they will do the download and reconciliation. Ultimately, systems like this could provide much of the functionality that advisors are looking for in aggregation software.

I recently had an opportunity to preview the IDS platform, and I came away from the experience thoroughly impressed. Basic client information will be obtained through the custodial feeds, but there is ample room on the account profile page to add additional details. For example, you can specify whether the account is to be tax-managed. If so, the program is capable of automating that process (more on this later). There are fields for systematic withdrawals (and frequency), income vs. principal accounting, unsupervised assets, reporting preferences, billing schemes, related parties, compliance issues, etc.

For those who work with foreign or multinational clients, the system's multicurrency capabilities will be appealing. Fields are available for both the "current currency" and the "client's investment currency," so it is possible to manage accounts in one or more currencies and report to the client in another.

The program offers substantial control at the individual account level. For example, you can set up an account for cash or accrual accounting. Tax-lot accounting can be turned on or off by checking a box. Individual tax lots held in an account can be accessed at any time by double clicking on the holding.

Accounts can be grouped in almost any imaginable way. An advisor might create a group of all "socially responsible" accounts, for example. Groups could be used to household family accounts, but a more convenient method is available: a separate field available specifically for that function. Consolidated reports can be run for both households and groups.

The IDS system offers the advisor a great deal of flexibility when defining individual securities. Default information such as asset class, industry group, sector, and subsector is supplied automatically, but the advisor can override and modify the default classifications at the advisor or client level.

The platform incorporates third-party pricing services, so current pricing is available for assets such as variable annuities and universal life policies. Unmanaged assets, such as employee stock options and family business interests, can be incorporated into reports so clients receive a total snapshot of their assets.

IDS offers some nifty trading aids. When proposed transactions are entered in the system, the user can immediately view the impact those trades will have on the portfolio, including asset allocation, sector weightings and short- or long-term realized gains or losses. On the fixed-income side, advisors can get a before-and-after view of the number of holdings, portfolio duration, portfolio convexity and average portfolio quality (bond ratings).

Before trades are placed, the system will screen the order against any account restrictions (stock, industry, sector, etc.) as well as any firmwide restrictions. If an alert is triggered, either a yellow or a red warning will appear, depending on the severity of the problem.

The trading system also supports models, including tiered models. Advisors can create a portfolio for a new client and generate all of the required trades by simply dragging and dropping the desired model into the trade blotter.

A wide range of automated liquidation methods can be selected as a default for each account. They include: LIFO, FIFO, Low Cost, High Cost, High Cost Long-Term Only, High Cost Short-Term Only, Low Cost Long-Term Only, Low Cost Short-Term Only, Average Cost and Best Tax Result. Obviously, in order to make optimal use of this intelligent order generation, the advisor will have to supply the program with additional, client-specific tax information.

Low-cost-basis holdings can be segregated and reported on separately. This is useful if the advisory firm is not billing for those assets, or simply wants to avoid selling them without approval to avoid a big tax hit.

The program offers additional, useful order management features. For example, if you are in the process of bringing on a new client, you can set the asset allocation and trades before the funding for the account arrives and check a "hold open orders" box. The trades will not be placed until the account is funded.

An Asset Allocation Drift Report can be run at any time. This report shows the client's target allocations vs. the current allocation, based on market price. The program shows the percentage of drift from the target amount, and allows the advisor to easily generate trades to bring the portfolio back into alignment

IDS offers very sophisticated search and filtering capabilities, so advisors can obtain the information they need rapidly. Queries can be saved and reused, so commonly used searches are easily executed.

The reporting capabilities really shine. Advisors can combine individual report templates into "client reporting sets," so if desired accounts or groups of accounts may receive a unique set of reports. The reports can be customized to include the advisory firm's logo, branding and market commentary. Client reporting sets can be saved and later be assigned to other accounts. The platform offers tiered performance reporting, so advisors can report to clients at whatever level of detail they deem appropriate. This means that performance reports can be generated for asset classes, sectors, subsectors or even individual holdings.

Advisors can combine search, reporting and mail merge tools to improve client service. For example, if a corporate action occurs an advisor could quickly search for all accounts holding the security, run a report on the fly with a brief commentary, create a mail merge and e-mail a notification to the appropriate accounts in a matter of minutes.

This IDS platform is the first system we've seen that allows advisors to generate their own XML feeds on the fly. This functionality will enable tech-savvy users to create their own "smart documents"-sophisticated templates linked to data in the IDS system that will be able to consistently refresh themselves.

Evaluation

Advisors have voiced two primary concerns with respect to their portfolio management software providers: independence and control. They have consistently expressed a preference to deal with independent third-party providers. In the case of ASPs, advisors have fretted over the thought of giving up control of their data.

The Fidelity/IDS relationship seems to have anticipated these concerns. By turning to IDS, Fidelity has distanced itself, to some extent, from software sales (although should the seamless integration of the IDS and Fidelity platforms take place, advisors still will be dependent on Fidelity). With regard to control, the IDS system will allow advisors to download data to their desktops in nonproprietary formats without any intervention from IDS, so they will always have full and complete access to their data. In addition, Fidelity and IDS seem to understand that data conversions scare the average advisor to death. "We will solve the conversion problem for advisors, period," said George Baumgarten of Fidelity. "We understand that this is a critical issue for advisors."

The only potential impediment to widespread adoption is cost. Detailed pricing information is not yet available, but I was told there will be an annual service fee component, a service fee and a per account component to the pricing model. A firm with 250 accounts and $250 million in assets under management might expect to pay in excess of $25,000 per year for the service. This is clearly much more than most Centerpiece, dbCAMS and CapTools users are used to paying, but it may be competitive with what some firms are being quoted by Advent, StatementOne and others.

The bottom line is that if the IDS/Fidelity platform can deliver on its promises, this is likely to be the most sophisticated, functional and unified portfolio management, reporting and trading system available to the independent RIA market. The solution offers numerous benefits, including the ability to outsource maintenance of the technology, single data entry (or none where integration provides it), downloads, reconciliation, backup/data recovery and access to data from any location. We should know within about six months whether or not the finished product lives up to its promise.

Joel P. Bruckenstein, publisher of Virtual Office News (www.virtualofficenews.), is a leader in the field of applied technology for the financial service professional.