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.