There's plenty for advisors to worry about on the financial, regulatory and legislative fronts these days, but on the technology front, the outlook is much brighter. The industry is currently undergoing some major changes in this area, and while change always entails some risk, the trends are encouraging. In this article we'll focus on three big changes: custodians' increased involvement in the technology, the migration of advisors to Web applications, and advisors' increased adoption of sophisticated rebalancing applications.
Custodian Technology
All major custodians offer varying degrees of back-office technology to help advisors access client account information, trading, cashiering, digital forms, product information and the like. Schwab, Pershing, Scottrade and TD Ameritrade all have subsidiaries that offer software to their own RIA clients and other advisors. Almost all offer some proprietary software, either developed in house or with a third party, that they offer exclusively to their own RIAs.
Recently, however, custodians have brought their technology involvement to a whole new level after finding not only that RIAs have been unable to master this area, but that breakaway brokers want it, and will be lured to a strong technology infrastructure when severing their ties with their wirehouses.
This has required custodians to find suites of third-party applications they can use with their own back offices. Fidelity was first out of the gate with WealthCentral. This platform includes portfolio management and reporting (Advent), financial planning software (EISI's NaviPlan), client relationship management software (Oracle's CRM on Demand) and trade order management/rebalancing software (Northfield).
Pershing followed up last year with the release of NetX360, a new back-office platform designed to allow third-party software to seamlessly plug into it so clients can customize. Pershing's platform already works with a number of third-party applications and the list continues to grow. Recently, Pershing acquired Albridge, a provider of wealth reporting and data aggregation services, and it has also announced the availability of a native application that will allow NetX360 users to grab much of their data from the graphically rich and intuitive iPad.
In May, Schwab announced its intention to offer third-party software to launch with its Project C initiative. Through Project C, Schwab plans to offer what it calls "intelligent integration" in two ways. The first is Schwab OneView Office, a turnkey solution that will come with a CRM application and a portfolio management and reporting system (presumably Schwab PortfolioCenter). These will be deeply integrated with Schwab's back office and sold as a package. After the rollout, the plan calls for eventually adding components, perhaps rebalancing software, financial planning software and document management software.
For advisors who want to purchase their own software but still be able to use it with Schwab's back office, Schwab will offer OpenView Gateway. Under this framework, the company will work with a list of yet-to-be-named third-party providers and make sure their products dovetail with its platform. If all goes according to schedule, Schwab will be demonstrating working models of Schwab OneView Office and/or its first implementations of Schwab OpenView Gateway at its annual Impact Conference scheduled for October 26-29.
TD Ameritrade was the last of the big four custodians to jump into the escalated technology battle when it announced its TD Ameritrade Technology Initiative in late July. Its approach centers on an interface that allows multiple third-party providers to plug into its back office infrastructure and pull data into their applications. It will also allow TD Ameritrade to pull data from third-party applications into VEO. To gain access to the interface, vendors must go through a vetting process that includes the inspection of their security protocols.
The advantage of this approach is that it allows advisors to keep using the technology they are comfortable with but possibly move on to a wider variety of providers in the future. Plans call for an "advisor dashboard" to be added to VEO, so advisors who want to use it as their hub can customize it to their needs. But as is the case with similar initiatives, execution will be the key to success. We look forward to the rollout of TD Ameritrade's interface in the coming months.
Other custodians are beefing up their technology offerings, too. Shareholders Service Group (SSG), which has a relationship with Pershing, has been rolling out NetX360 to SSG advisors. According to Dan Skiles, an executive vice president at SSG, the rollout is ahead of schedule. More than 50% of SSG advisors have already begun working with NetX360, and Skiles expects all of them to transition before year's end. In July, he says, SSG inked a deal with Black Diamond, giving its advisors access to a sophisticated reporting platform capable of exchanging data with SSG's back office.
Trade PMR, the Gainesville, Fla.-based custodian we profiled in the April 2010 issue of Financial Advisor, continues to build its integrated eCustody platform, working with partners such as Morningstar, Redtail, Advisor Exchange, LaserApp and MoneyGuidePro. The company anticipates the rollout of eCustody2 soon.
As custodians commit their substantial resources to technology for advisors, the prospects for better products, better integration and lower technology costs look bright. That's good news indeed!
Migration To Web Applications
Web applications for advisors have been around for a number of years, but it's only recently that professionals have been taking them on at a brisk clip. After a slow start, attributable in part to a "soft" rollout, the adoption rates for Fidelity's WealthCentral are picking up dramatically. In the nine months ended June 30, the number of firms using components of this platform is up approximately 65%. There are now more than 300 firms using the platform's trade order management/rebalancing tools and more than 250 firms using Advent's portfolio management tools through WealthCentral.
According to Linda Strachan of EISI, the leading developer of financial planning software in North America, 12% of EISI users switched to an online version of EISI software this year from a desktop or offline version when they renewed. This trend should accelerate further in the coming months with the recent rollout of EISI's NaviPlan Select, an online product that combines the best of the NaviPlan Standard and NaviPlan Extended desktop product lines while adding a host of new features and enhancements. It's not just existing clients migrating to the Web: EISI is experiencing 12% growth in new sales of online applications as well. Strachan sees a parallel trend on the institutional side: "Our large enterprise clients have also increasingly requested that EISI host their applications, a change from the internal hosting trend of the last decade," she says.
Bob Curtis, the president of PIEtech Inc., the developers of online financial planning software MoneyGuidePro, says that the maturation of Web-based software and its ease of use have made applications such as his increasingly attractive to advisors. While MoneyGuidePro has offered client collaboration tools for almost a decade now, Curtis believes Web collaboration has finally gone mainstream. "Today, collaborating on a financial plan over the Web with clients is really part of the business. The tools are better and there are more opportunities to offer interactions over the Web," he says. MoneyGuidePro includes online presentation tools that make it easy for advisors to work with clients remotely.
Strachan agrees. "Advisors are increasingly involving clients in the planning process and are looking for their financial planning software to support this need. EISI is responding with focused, interactive visual presentations of plans," she says. This includes a presentation module for both product lines launching in fall 2010, she says.
Curtis cautions that there are also direct-to-consumer tools on the market that target your clients, so it is important to stay ahead of the curve and ensure that clients come to you and your Web site to get their financial information.
Meanwhile, advisors are also adopting online document management in greater numbers. Clearly, firms hesitant to install in-house document management solutions in the past have found the online applications more to their liking. James True of Cabinet NG reports that fewer than 5% of the company's existing document management software clients, whether they are financial advisors or not, have converted to an online system. But among new users, the story is dramatically different: More than 90% of new financial advisor clients have chosen a hosted subscription "software as a service" model. (New clients from other industries are choosing the online model in 70% of the cases.)
Rebalancing Software Makes Inroads
A few years ago, iRebal and Tamarac, the two leading providers of sophisticated rebalancing software, each claimed only about 40 advisory firm clients. Tamarac now serves about 350 firms and iRebal serves about 70. Some 300 advisor firms, meanwhile, use Northfield's rebalancing application through Fidelity's WealthCentral platform.
Other products are gaining a following, too. Total Rebalance Expert (TRX) has emerged as a cost-effective solution for small to midsize RIA firms using Schwab's PortfolioCenter as their portfolio management software. eAllocator, developed by Joel Javer of Sharkey, Howes & Javer, is another affordable product. TradeWarrior, currently in beta from Nine Mile Software, is yet another.
We expect other applications to roll out soon. Morningstar is reportedly working on a rebalancing application to round out Morningstar Office, and Pershing is also reportedly beta testing a third-party rebalancing product that the company expects to roll out on its NetX360 platform before year's end.
Are these rollouts significant? We think so. Clearly, advisors are finally acknowledging the value of more sophisticated rebalancing software. Furthermore, more products coming to market means that software developers believe we are still in the early stages of a big growth cycle.
Odds are that they are right. New products coupled with strong demand should lead to lower prices, which in turn should lead to greater demand. Tests suggest that rebalancing software can help an advisor save 90% of the time he would otherwise spend rebalancing manually for every household. That can save money.
Despite these trends, not all is rosy. It can be frustrating and time consuming for an advisor to change applications and providers. The benefits of upgrading, however, have never been more compelling. We expect these trends to have a lasting positive influence on the efficiency and profitability of firms both large and small. With the overall economic outlook murky at best, a little good technology news could not come at a better time.