Web services have been around six years, but they are just starting to offer what advisors need.
Is the Silver Bullet dead? Longtime readers
understand that this is an important question. Over the years, I've
used this term to describe the perfect advisor suite, sometimes also
referring to it as the Holy Grail. It's the integration of the three
core applications integral to every serious independent advisor's
business: portfolio management, customer relationship management and
financial planning.
According to folklore, the Silver Bullet was the
only bullet effective against a witch, vampire or monster. The Holy
Grail, according to Christian legend, was the dish, plate or cup used
by Jesus at the Last Supper, said to possess miraculous powers. The
mythic proportion of an integrated workstation for independent advisors
is communicated accurately by these terms.
For most independent advisors, the Silver Bullet
remains an elusive goal. However, I believe we have entered a new era
in which the Silver Bullet will now start being built using your
favorite Web-based applications. Let's call this era Silver Bullet 2.0.
Like Web 2.0, the term used to describe Web sites that empower
individuals as never before to utilize the Web more effectively for
their own personal needs, Silver Bullet 2.0 empowers independent
advisory firms to use their blend of applications to build their own
integrated advice platform. You'll be able to stitch together your own
Silver Bullet using the Web-based applications. Over the next couple of
years, Silver Bullet 2.0 will make integrated platforms less mythical
and more real.
Silver Bullet 1.0
In 1996, the notion of integrating portfolio
management software (PMS), customer relationship management (CRM) and
financial planning software into a single application was a mere a
dream. While such technology had been developed by big Wall Street
firms, none of the technology vendors serving independent advisors had
attempted creating such an ambitious platform. That's the way it was
until the introduction of Interactive Advisory Software (IAS) from
Optima Technologies in 2002.
IAS promised what advisors had hoped for: the
all-in-one application. But Optima soon found that advisors were not
beating a path to its door. Its effort became snarled in problems of
converting users' data from other PMS applications.
To its credit Optima eventually overcame those
issues. It has not, however, overcome the biggest challenge: the
idiosyncratic systems of advisor practices and the unbending nature of
the entrepreneurs running advisory firms. Some advisors liked IAS's PMS
software but did not like its CRM system. Some liked IAS's
cash-flow-based financial planning system, while others found it
cumbersome. While IAS had been touted as the integrated solution
advisors had long been seeking, to date only about 150 firms have
bought IAS and many are only using the program's financial planning or
PMS components, but not all three.
IAS demonstrated that there is no such thing as the
perfect integrated application-not in this tiny, fragmented independent
advisor world, where the owner of a successful firm could earn
$300,000, $400,000 or $750,000 a year and is likely convinced that his
or her way of serving clients is the right way. While IAS is lauded by
some of the smartest advisors I know as being a great application, the
vast majority of advisors invariably have reservations about it
because they don't like one little thing or another. IAS is to be
commended as the best effort so far at creating the integrated platform
that advisors long yearned for, and it may over the next couple of
years attract a hard-core group of perhaps a few hundred devotees.
However, the curmudgeonly independent wealth managers it seeks to serve
are unlikely to embrace IAS or any other "silver bullet" application in
large numbers. The nature of independent advisor practices makes it too
difficult to adopt a single program to do almost everything in your
business.
After all, what firms would a Silver Bullet
application be targeting? It must, of course, be targeted to
established practices. Budget-minded startups and small firms can patch
together inexpensive applications rather than pay a premium for a
Silver Bullet.
Which presents yet another challenge to Silver
Bullets: If you have an established, successful advisory firm, is it
prudent to base your operation on a platform offered by a single
technology company? What if the company gets sold? What if it goes out
of business? What if it doubles its prices 100%? You could probably
make up a long list of your own scary questions about the risks you
expose your business to when you entrust a single company's platform
with your business.
Moreover, dropping your current PMS, CRM and
financial planning software requires totally reengineering your
business, and changing the behavior and procedures familiar to your
staff. If you have a successful firm, how likely are you to do that? If
you think your PMS application is OK-not great but just OK-are you
going to risk major disruption of your business because you like IAS's
integrated financial planning and CRM? It's unlikely.
As a result, after watching IAS make little traction
over the past few years and not becoming the revolutionary new platform
for hundreds of firms, I began to think that the search for the Silver
Bullet had come to a dead end, that the Holy Grail would never be
found. Until now.
Silver Bullet 2.0
Emerging from the development of next-generation,
Web-based applications, an effort coinciding with the development
effort widely known as Web 2.0, is a new push for integration. But it's
a different sort of integration this time.
Instead of one company developing a workstation that
includes all three applications crucial to running an advisory firm,
Web-based PMS, CRM and financial planning vendors are exchanging data
through Web services. A Web service is not a bank that offers online
banking or another company that let's you access its service over the
Web. Rather, it is a way to request and transmit data across a network
or across the Internet by using standard Internet protocols, typically
HyperText Transfer Protocol (HTTP) and eXtensible Markup Language (XML)
to present the data. Keep in mind, a Web service is far superior to
imports and exports of data from one application to another. Imports
and exports require manual processes. Web services can happen
automatically. Without much difficulty, Web services can provide live,
real-time integration. When data changes in your data-provider's
application, it could automatically be updated in real-time in other
applications without any manual intervention.
A Web service typically performs a specific set of
functions. For instance, a Web service from a portfolio management
software program could provide data to a financial planning program.
The financial planning program could then use that data in all of its
functions, such as calculating a net worth statement or creating an
estate plan. The PMS application could write another Web service
program to be used by an analytics application, and the analytics
application could then use that data to show you what asset classes a
client's portfolio is comprised of, where the portfolio falls on the
Efficient Frontier and give you the portfolio's R2 and other Modern
Portfolio Theory statistics. The beauty of Web services is that these
three applications-the PMS, financial planning and analytics
applications-are working in concert despite the fact that they are
being run on different Web servers by different companies over the
Internet.
To be sure, Web services don't allow total
integration of different applications. You are utilizing data in one
application to operate another application and, therefore, are using
different interfaces, which is not ideal. But Web services do allow
applications to speak to each other more easily than ever before,
creating almost seamless integration of different applications.
Understanding Web Services
Web service is not new technology. It's been around
for about six years. But it is now taking hold and it is beginning to
be implemented by advisor technology vendors because more applications
are Web-based.
Web-based applications make integration with Web
services easier. It removes a layer of programming that must otherwise
be done to integrate applications. If you try to make a desktop PMS
system talk to a desktop financial planning application, the
programming is far more complicated than making two Web-based
applications talk to each other. It may even be impossible if the data
provider has a closed system, meaning no interfaces from which an
export can be made to pull the data from the application and use it
elsewhere. That's why there was never any serious effort to create the
Silver Bullet using three different desktop applications. It was too
daunting a task for small vendors serving independent advisors. The Web
changed that.
All Web applications swap data using a standard
protocol called http, Hypertext Transfer Protocol, or https, the secure
version of http with an encrypted data stream, allowing your computer
to request information from Web servers using http. Desktop
applications don't speak http, however. Making them do so requires an
extra layer of programming, and that could often make it take much
longer to write the code to allow a desktop portfolio management
application to speak to a Web-based application.
To pull the data from the PMS application, using our
earlier example, the financial planning application would have to know
the logic of the PMS system's database and understand all of the tables
and what each piece of data in each database table means. As a result,
developing the interface is likely to be far more complicated compared
to using a Web service, where the financial planning application is
simply requesting a data package made available by the PMS application.
The financial planning application doesn't need to know the database
schema of the PMS application. It just needs to call the Web service
containing all the data it wants. It's kind of like the difference
between going to a restaurant and ordering a la carte versus from a
prix fixe menu.
Which brings us to the other factor ushering in the
Silver Bullet 2.0: the growing use of Application Programming
Interfaces (API) in applications sold to advisors. APIs have been used
for decades, but now we are seeing technology vendors serving
independent financial advisors use APIs to market their products and
show how easily they can be integrated with other applications you use.
The reason the Web-based applications can order from a prix-fixe menu
is that the menu has been prewritten into an API.
An API is a predefined set of tasks that the Web
service can perform, and each can return a specified bundle of data.
For instance, Albridge Solutions, the big PMS system used by more than
100 B-Ds that is now starting to make a move toward serving registered
investment advisors (RIAs) not affiliated with a B-D, has APIs for
different advisor applications, including NaviPlan, Money Tree and
about 20 other applications. Albridge could write an API for a
financial planning program exporting all of the data any planning
application needs, and then any financial planning applications can
write an interface for using that data. In fact, it's possible that the
same API-depending on what data has been made available by it-could be
used by analytics applications or any other application that can
utilize the data. The point is that Albridge does not have to write
individual interfaces to each program.
The other factor in easing the way toward Web 2.0 is
that the APIs use better technology than ever to make it easier to use
the data coming out of one application and going into another. That's
where eXtensible Markup Language (XML) comes into play. In programmer
terms, data coming from a feed using XML is "tagged." In layman's
terms, each piece of data is defined or labeled. So a programmer trying
to import data into a financial planning application from a PMS
application can easily access the price information in the XML data
bundle by using standardized modules to retrieve the number associated
with the price "tag." Previously, mapping data fields was far more
difficult. A programmer had to order a la carte by making individual
calls on the PMS system's database, or understand the inner workings of
its API-if there was one.
Silver Bullet Advocates
With so much riding on Web services and APIs, a new
organization has been formed, affiliating about 20 technology vendors
to formalize communication about Silver Bullet issues. The group is
called Your Silver Bullet and it was founded by Greg Friedman, a
Novato, Calif., financial advisor who some years back teamed up with a
programmer, Ken Golding, to create a CRM application for his own firm.
Their program, Junxure, is now used by 700 advisory firms, including
many of the most successful independent wealth managers in the nation.
While the idea behind Your Silver Bullet is
admirable, it remains to be seen whether it can have a serious impact.
Neither Schwab Performance Technologies nor Advent Software is among
the membership. Yet these two tech vendors are central to such a
group's success. The portfolio management software applications sold by
these two vendors provide the data warehouse for about 7,400 wealth
management firms, probably about 70% or 75% of the independent
financial planners and wealth managers operating through an RIA.
Without these two key vendors supporting the Silver Bullet concept, the
most important factors in creating a Silver Bullet cannot be
meaningfully addressed.
Even with the cooperation of these two vendors, the
task would be daunting. Vendors would have to agree on common standards
for data integration. Agreeing on the most basic items, like what is
the definition of a security's price, a dividend, ex-dividend, would be
challenging, never mind the long list of esoteric items, such as how to
record limited partnerships, variable annuities, whole life insurance.
The standards that need to be agreed upon by firms that compete with
one another are complex. Friedman says the membership in the group
costs $4,000 a year, but the sustained effort that standard-setting
will take is likely to cost hundreds of thousands or millions of
dollars to pay for staff, fund research and promulgate rules. Gathering
that kind of momentum without the support and funding of the industry's
largest firms and key players is unlikely, especially since it is not
in their interest at this time.
Advent Axys runs a closed proprietary database and
says it has no plans to change that for the 4,000 firms using it.
Schwab PortfolioCenter, while running on an SQL database, also is not
truly open architecture. The PortfolioCenter database is actually
encrypted. The database schema is password-protected by Schwab, and the
licensees' user name and password won't give you access to the
database. To access the data in PortfolioCenter, you must use an export
manager. So although Schwab has made it easier for licensees to export
and import data and convert to another PMS application, it has cleverly
stopped short of totally open architecture. They don't make it easy for
you or a third-party vendor to get access to that data. The point is,
these firms know that they control your data and are not likely to
support a consortium that undermines their competitive advantage.
Silver Bullet 3.0
Yet Your Silver Bullet does offer a window into the
future and could help speed up the movement toward Silver Bullet 3.0, a
period they may take another three or five years to come about, when
competitive pressures force all the PMS vendors and custodians to
create open databases. What's going to force companies to accede to
open architecture is competition, when their profitability is hurt by
not offering what advisors demand. With more Web-based vendors cropping
up and becoming a threat to desktop systems, competition will force
change over the next two or three years. If Albridge becomes serious
about serving RIAs, for example, that will be significant because the
PMS company has more than 100 employees and already serves 100 B-Ds
representing nearly $1 trillion in assets, 70,000 financial advisors
and more than 10 million investors with 35 million accounts.
In February, White Oaks Wealth Management of
Minneapolis, a leading RIA firm with $200 million under management that
was founded by Bob Klosterman, switched from Advent's AdvisorMart
Web-based PMS system to Albridge. With Advent no longer investing in
AdvisorMart, a relic of its 2002 purchase of Techfi Corp., White Oaks
was compelled to find another solution. But the fact that this savvy
entrepreneur, who has been around the block with PMS vendors, chose
Albridge is significant. Klosterman was an early adopter of Techfi's
system, and now he's an early adopter of a PMS system that holds the
promise of spearheading the Silver Bullet 2.0 era because it has
perhaps the most well-developed Web services programs of any tech
vendor serving independent advisors. Albridge actually has personnel
who work on nothing but Web services full time. Klosterman says he is
pleased with his decision. For his firm's CRM application, Klosterman
says he switched from GoldMine, an off-the-shelf mass-market retail
application, to Redtail Technology, which offers a Web-based CRM
application for advisors that has a Web service interface with
Albridge. Klosterman, so far, says he is thrilled with Redtail.
In addition to Albridge, other industrial-strength
Web-based PMS applications are on the rise. Black Diamond Performance
Reporting, a start-up, may offer scalability and has a business model
that so far is gaining assets from large RIAs with impressive speed.
Meanwhile, Investigo, which had a tough year in 2006 after releasing a
version to its B-D enterprise-wide clients that had a few too many
bugs, seems poised to get back on track and has declared its interest
in targeting RIAs.
These are not tiny start-ups like we've seen enter
the PMS market in the past. These are well-funded, Web-based PMS
applications. As more advisors follow Klosterman's lead, Schwab and
Advent will feel the heat of competition. That could begin the era of
Silver Bullet 3.0. If Schwab and Advent don't become part of the Silver
Bullet solution, advisors will see them as part of the problem. My
guess is that will take at least another couple of years, however.
For now, start asking your data and software vendors
if they have any APIs opening their data to other applications. If so,
ask what other programs are integrated with its system. Increasingly,
the market will force vendors to post pages boasting of how many APIs
they have and which companies are integrated into their system. While
we are still in the infancy of this technology shift, we are talking
about Silver Bullet 2.0.
Andrew Gluck, a longtime writer and
journalist, is CEO of Advisor Products Inc., a Westbury, N.Y.,
marketing company serving 1,500 advisory firms.