On January 1, 2008, a Web site little known to all but a small group of financial advisors posted a photo of fireworks bursting in air along with a cryptic two-sentence blog: "My noncompete agreement just expired. This should be a fun year."
With that, Matt Abar, a 36-year-old computer geek who earned a fortune five years ago by selling his tiny portfolio management software (PMS) company to Advent Software, obliquely announced his return.
Abar is back and he's doing it all over again. He's starting another PMS company. He's writing code in his house. He's coming up with innovative ideas. And he's plotting a PMS coup d'état. Only this time, Abar is wiser. He's spent nearly six years simmering idly in purgatory, anxiously thinking about a comeback while his noncompete agreement seemed to take forever to expire. But it gave him time to think about his mistakes-mistakes that made his $12 million sellout to Advent bittersweet and that left him with unfinished business. He's unlikely to make those mistakes again.
"I didn't do it only for the money last time," explains Abar. "I did it because I love building software. I still sit around and play with the computers all day, even though I can do whatever I want now." Adds Abar, "Honestly, though, I'm just not ready to retire."
Abar's new company, FinFolio, will be Denver-based. Unlike his previous Denver-based venture, which targeted small as well as larger advisory firms, Abar says FinFolio will target advisors managing $500 million and up. Ironically, that will put FinFolio in direct competition with Advent Portfolio Exchange. "We're not going to compete on price this time," Abar says. "We'll cost about the same as Advent Portfolio Exchange but provide a lot more functionality."
Abar, who for the last five years lived in a spacious condo just off the strip in Las Vegas, has returned to Denver to work with Mike Benson, who had run application development at Techfi in the months just before it was acquired, and stayed on with Advent to work on the initial development of Portfolio Exchange. "We'll have something for people to see by the middle of the year, and something they could run a practice on around the end of the year," Abar says.
The pair have been huddled in Abar's home, architecting the new PMS system that Abar vows will again leapfrog the competition. "I see a gap for larger advisors in the PMS marketplace," says Abar. "There are no systems that are open and that have hooks for advisors to run their practice on and use as a foundation to build custom systems tailored to their business."
Abar was already taking a swipe at Schwab's PortfolioCenter PMS software. While that program is built on an SQL database, its performance calculations are encrypted. To pull performance data from the program, Schwab provides an extract tool. While a vast improvement over Centerpiece, Schwab's software limits the ability of an advisory firm to integrate its central data repository with the other applications it uses.
Abar says he is programming FinFolio so that its calculations will be embedded in "object layers," and any database programmer will be able to write code pulling data from those objects. "Firms will be able to customize the application to their specific needs," he says. "They will be able to write queries to pull performance data for any period they want, or write their own billing system from the exposed object."
In a significant departure from any other PMS program, Abar says he will expose important parts of FinFolio's source code. Much like Salesforce.com, the world's most popular CRM system, exposing the software code will invite developers to write other programs to the PMS system. This would be a sharp departure from the status quo. Advent Axys, which is used by about 4,000 RIA firms and Schwab PortfolioCenter, which is used by 3,400 firms, have carefully guarded how their PMS databases can be accessed, retaining control over the lifeblood flow of data in an advisory firm's practice.
"We will allow open access to all of the portfolio data, and the billing module will also be open," says Abar. "A firm will be able to hire a programmer who knows how to use Visual Studio.Net to customize the billing system to their business, for instance, for a few thousand dollars."
Abar says he is also likely to use Microsoft's new Silverlight development platform to program FinFolio's interface. Microsoft describes Silverlight as "a cross-browser, cross-platform plug-in for delivering the next generation of .NET-based media experiences and rich interactive applications for the Web." Using Silverlight will make FinFolio a multiplatform application, meaning one set of code can be run on a computer on either a desktop or over the Web. Silverlight will also let users access FinFolio through Apple's Mac operating system or a PC. "Silverlight is still in beta, but I'm almost certain we'll be using it because we are developing the interface last," says Abar.
Abar then checked himself. "I'm not going to make the same mistake I made last time of talking a lot about features and specifics way in advance of delivering them," he says. "It puts too much pressure on us to deliver. And I'm also not going to make the same mistake of trying to do too much like we did last time, with rushing the CRM module and other features before we perfected our core functions." Clearly, this was a different Matt Abar than the awkward 27 year old I had met years before.
The Back Story
Abar first called me in December 1998 to tell me about a new program he had developed in his home. A self-taught programmer who had dropped out of college, he had walked away from his job as a developer at Investment Advisory Network and closeted himself away for several months. When he emerged, he asked if I'd review his new product. Abar had built a PMS system on Microsoft's SQL database, and it prefaced a new era for technology systems targeted to advisors.
Microsoft SQL is an open database, allowing export of portfolio data to other applications used in advisor offices, such as contact management, financial planning, and analytics programs. The potential for customized integration by linking Portfolio 2000's database with an advisory firm's other systems was enabled at the time by no other portfolio management software: not Advent Axys, Schwab's PortfolioCenter (then called Centerpiece), nor dbCAMS. And the SQL platform made it easy to create a Web-based version of the software and to use Web services to dynamically transport portfolio holdings and performance and other data into a wide range of advisor applications. Advisors would no longer have to manually re-key data in multiple applications.
Abar's software was a big deal and I jumped on it, writing a favorable review that appeared in my column nine years ago and a series of follow-ups. Advisors, clamoring for a PMS alternative to Advent and Schwab, were soon abuzz about Abar's company, Techfi.
Over the next three-and-a-half years, Techfi was propelled to popularity by independent advisors and rode the technology wave. Along the way, Abar raised $200,000 from First Trust of Denver and $3 million from Morningstar. By age 30, Abar had created one of the first Web-based PMS systems, launched a version of his program that integrated a Customer Relationship Management module, and was beginning to write the code for a financial planning add-on module. By the beginning of 2002, Abar was building an advisor's silver bullet-an application integrating PMS, CRM and planning. But troubles were cropping up.
Advisors who had purchased the software contacted me to complain about Techfi's service and, most serious, some raised questions about its performance calculations. Meanwhile, Rob Major, a co-founding minority partner, became embroiled in disagreements with Abar about the direction of the company. Abar now admits that he was having trouble finding qualified executives with knowledge of advisor technology and good operations management skills to help lead the company. Abar says he explored raising $2 million in the spring of 2002 to address operational, technology and personnel issues and elevate Techfi to the next level, but with the tech bubble burst it would have meant giving up at least a 40% stake in the company. That was when Advent made an offer to buy Techfi.
"Advent was offering us amazing money and telling me a great story about how we would become their next platform and they would give us all the resources we needed," says Abar. "It was clearly the right way to go. No one would not have taken the deal." Abar sold the company in June 2002 for $23 million, with about $12 million going to him.
Within a month of the sale, Abar says he was disappointed in the direction of the company, and he was in a position with no power to change things. He stopped coming to work, although he remained an Advent employee for 11 months. Afterward, he remained an inactive consultant and was forbidden from working on another PMS or other advisor software for five years by a noncompete agreement. Over the next two years, Advent stopped supporting Techfi's Web-based system for broker-dealers, the AdvisorMart Web-based system for RIAs, and the flagship desktop PMS system. Techfi was dead.
"I'm probably in the minority, but I don't think Advent bought the company to shut it down," says Abar. "I think they simply screwed up. Their management team changed and Techfi lost its advocates within the company."
In fairness to Advent, its decision was practical. It made little sense for the company to support two platforms. Peter Caswell, the CEO of Advent at the time of the Techfi deal, had embarked on a series of other acquisitions and far-reaching initiatives. And, in fairness to Abar, many of Caswell's other initiatives were also undone or abandoned after Caswell was dismissed and the publicly held company's board rehired founder Stephanie DiMarco to replace Caswell.
Still, Abar says he was angry. "This was my baby," he says. "And I felt responsible for advisors who had become dependent on Techfi. To see the software casually tossed aside was infuriating." Abar remembers two advisors who contacted him around the time of the sale and were "pretty angry" because they had switched to Techfi specifically to get away from Advent.
Different This Time?
So should advisors trust Abar again? Or would you be just asking for the same bad service, data woes and the potential of a conflict-laden sale of the company that makes the core system that you rely on to operate your business? For what it's worth, Abar promises to do things differently this time, and my guess is he has the brains and determination to pull it off.
This is a guy who in many ways has been transformed. During his five years in Las Vegas, he learned how to ride a motorcycle, bought a new Porsche Turbo and wrote an online gambling program with Benson designed to beat anyone at Texas Hold 'Em poker. Abar, a once socially awkward geek, has become confident and self-assured. He met a beautiful, blond and intelligent college student, fell in love with her, and courted her for four years before they were married last spring.
But in many ways, Abar is totally unchanged. While he could sit back and do nothing, he has been keeping up with advisor technology. He's been writing a blog (www.wealthfly.com) and commenting on developments in the industry. Most important, he still gets really excited talking about how he is going to build a software program that "does things that I am amazed no one else is doing," and he then rattles off a list of features faster than I can type, "like mark-to-market accounting, before- and after-tax reports. And did I tell you it will be multicurrency and handle straddles as well as sales of stocks with qualified dividends that are held for less than 60 days and, therefore, treated as ordinary income?"
And what's truly amazing is that over the past five-and-a-half years since Abar has been sidelined, the PMS landscape has hardly changed. Schwab and Advent still dominate the market, and the crowd of competitors that arrived after Techfi-AssetBook, BlackDiamond Reporting, Interactive Advisory Software, Portfolio Director, PowerAdvisor-have combined captured the 500 clients Techfi amassed during its four fleeting years in business.
"If you would have asked me ten years ago if I thought there was any chance there would still not be a universal file specification, or an integrated system for financial planning, CRM, PMS, and trading, I would have laughed at you," says Abar. "I cannot believe things are not further along by now."
Well-heeled, experienced and with a history of success, Abar insists he will do things slower and plan better with his new venture. "At Techfi, we did everything as fast as we could," says Abar. "It was because of my inexperience. We didn't stabilize the software, we ramped up to sell products before we had a framework in place and before we had the right personnel lined up to service them."
Abar says he and Benson are building out the framework for the accounting engine before building any screens and putting any features on top of it. He says quality assurance of the code is aided by the use of "unit tests." At the same time they program every feature, Abar says, he and Benson write code to test the feature. A rate of return calculation, for instance, might be tested with 50 different cash flows, date ranges and boundaries to be certain the calculation can work if a security is sold for zero, repurchased in the middle of a period, or endures some other strange twist. "This application will be more stable than anything I ever did at Techfi as a result of this type of testing," says Abar. Whenever a new feature is built that relies on previously coded functions, the unit tests are run again.
Abar says he will go slowly. "I could self-fund the business with a few million dollars and have a team in place by the end of March, but I want to keep it small for now," he says. He is seeking to build a board of advisors. "I want to find a group of advisors with strong opinions about what they want from a PMS system," he says.
Abar is focused on getting things right this time, perhaps because he feels like he let down the approximately 500 advisors who had bought his software before he sold Techfi. "I do feel guilty about what happened and I don't intend to let it happen again," he says. "Even though I am targeting larger firms, if a former Techfi customer with $100 million under management comes to us, we will find a way to help him."
For Abar, it seems the goal is to fully address some unfinished business.
Andrew Gluck, a longtime writer and journalist, is CEO of Advisor Products Inc. (www.advisorproducts.com), Westbury, N.Y., a marketing company serving 1,800 advisory firms.