The feature that he seems most proud of is the data-scrubbing function. Embedded in FinFolio is a set of rules that cross-check data that are input or downloaded. The goal is to make the data more reliable but lessen the work involved with daily reconciliation. "The biggest problem in portfolio management is data reconciliation because the tools for troubleshooting data are very limited," says Abar. "It's basically a share-balance check and if your share balances match the custodian's, then you assume everything's OK. The problem is that there are so many other types of problems that can get introduced into your database without you being aware of it."
For instance, Abar says that if a dividend reinvestment gets downloaded from your custodian as a purchase, then your share balances still match but you're actually missing the dividend. When you run a report with your gains or rate of return, you're going to be underreporting your return. Abar says this is one of 20 or 30 common data reconciliation problems that occur regularly when downloading data from a custodian. "We've wrapped an error alert system into the transactions download process and we're checking the data every which way, and I think that we've gotten it to the point where it's literally impossible to get bad data in here without it throwing a flag of some kind," says Abar.
He says he has about 15 beta testers lined up, about half of them old users of Portfolio 2000 that have not had an update to the software in many years. Most of those users have a license that expires at the end of this year or by mid-2010 and Abar says the migration for them from Portfolio 2000 will be relatively easy because the programs have a lot in common-chiefly, Abar himself.
He thinks he will be able to let beta testers install FinFolio on their machines in February and says the beta could last until June or July. Among the lessons he has learned is to test his software thoroughly before launching it. In the meantime, he has hired an operations director.
So what will it cost? He says a firm that manages $200 million, has four product users and needs two custodial interfaces would pay about $20,000 for the product the first year and $15,000 a year after that. A firm with $1 billion under management, ten users and four custodial interfaces would pay $70,000 in the first year and $56,000 annually after that. This does not include setup, training, data conversion, custom reports or the development of custom reports.
PMS gridlock, a natural outcome of the strange competitive dynamic among system vendors, remains in full force and continues to stifle innovation. The key application for RIAs-the data warehouse that feeds all other parts of their practice-remains a desktop application dominated by Schwab and Advent, and there seems little will change anytime soon.
Charles Schwab is pursing a smart strategy: It does not regard portfolio reporting as a profit center and keeps prices for PortfolioCenter low because it makes its real money on custody services. Advent, which actually does need to make money on the software it sells, is thus unable to hike prices for Axys for fear that its users will bolt.
And that keeps the software from moving away from its proprietary 1980s programming language and ancient architecture. These issues also keep other large software companies from entering the PMS software market. And those that do don't last-if Intuit's short-lived 2006 in-and-out adventure with PortfolioMinder is any indication.
The gridlock does allow small, underfunded new entrants to create fledgling ventures at low prices while they struggle to grow slowly and gain market share. But advisors are likely to continue to be unhappy with or fearful of betting their practice on these small, fledgling PMS vendors.
Abar's effort with FinFolio is different from the usual startups. He presumably has the money to self-fund a long development process. He's had three programmers working out of his home for months. He has the experience in the business and is charging a price that's on par with or higher than that of PortfolioCenter or Axys. That should make it easier for him to afford supporting the product and further developing it as an application that produces accurate, attractive-looking reports with an easy-to-use interface. He also knows it's likely to take three years to build enough momentum and trust. We'll see.
Andrew Gluck, a longtime writer and journalist, is CEO of Advisor Products Inc. (www.advisorproducts.com), a Westbury, N.Y., marketing company serving 1,800 advisory firms.