It would seem financial advisors would have to rely on their software providers to determine whether there is a patent infringement. However, in this case, "there will be a big fight to determine what existed prior to 1998," Fitzpatrick says.
PIEtech Inc., the developers of MoneyGuidePro, which has been the focus of most of the controversy, says it will vigorously defend its rights and its clients, including UBS. It claims there is no patent infringement. Some experts say the patents should never have been granted in the first place because Wealthcare is trying to patent the process of financial planning itself.
Some experts even say they would not be surprised if someone asks the patent board to re-examine the issuance of the patents. Some patent attorneys estimate that when approved software patents are challenged in court, about 80% of them are thrown out.
Water M. Primoff, director of the Professional Advisory Group of Altfest Personal Wealth Management in New York, questions whether work that had previously been done manually, such as preparing goals for a financial plan, can be patented when software is developed to do it on a computer.
"This becomes a public policy question," Primoff says. "Planners who have a close relationship with a client may have to say they have to do research or consult a patent attorney before they can answer a question. The Supreme Court may have to make a judgment on exactly what is patentable, taking into consideration the small business people who are professionally advising clients."
--Karen DeMasters
Bank On It (Not)
Banks with wealth management divisions dream of using their financial advisors to promote referrals and cross-selling across a bank's various business lines. The goal is to provide customers with a more holistic product offering and to snare more investment assets. Sounds good in theory, but it is more difficult to pull off in practice.
Ideally, banks seek partnerships between retail banking, small-business banking and the advisors at their wealth management units. But according to a recent report from Aite Group, few U.S. banks have achieved more than a 25% investment cross-sell ratio with their mass-affluent customer base.
Part of the problem, according to Aite, is that the bank-affiliated advisors most plugged into their institution's referral network do worse than those who generally eschew referrals and instead drum up their own business. "The lowest-producing group [of advisors] in terms of revenue per client are those most reliant on referrals at bank branches," says Aite senior analyst Sophie Schmitt.
Among the possible reasons: Advisors located at bank branches may not be getting enough quality referrals or they may not be good at cold calling for new business. "They might be relying on the bank as a crutch," Schmitt says. Plus, some customers might look at advisors working out of bank branches as glorified bank tellers.
The roster of leading banks with wealth management divisions include Bank of America, Wells Fargo, JPMorgan, PNC, SunTrust and U.S. Bank. Not all of them have advisors conducting business out of bank branches.
Aite's report, Referral and Cross-Selling Adoption in Bank Wealth Management: A Need for New Incentives, found that Merrill Lynch and Wells Fargo advisors are still trying to figure out how to use their retail bank channels after recent mergers involving those two companies (Merrill with Bank of America and Wells Fargo with Wachovia). And that might be a good thing for those advisors, who generally continue to do well doing their own thing. "A lot of advisors who ignore being part of the bank in terms of leveraging internal partners are doing quite well," Schmitt says.