Neesha Hathi: That's a bit of an evolution for us.

Schwab shifts its strategy on its massive Intelligent Integration

Schwab evolves to a platform-of-platforms strategy for technology rather than hand-picking best-of-breed applications

June 7, 2012 — 4:56 AM UTC by Lisa Shidler

12 Comments

Schwab Advisor Services has shifted strategies on its giant Intelligent Integration initiative, and rather than picking the best of breed in technology categories, the firm is looking to select the industry’s top platforms.

It’s no secret that Schwab has been slow it roll out its new technology project — which centers on CRM integrations — but Neesha Hathi, vice president of technology solutions, explained at a phone press conference on Wednesday that the company’s strategy for choosing technology has shifted. See: Schwab taps Tamarac as its next integration partner.

Categories are unimportant

At the beginning, she said, Schwab wanted to offer specific technologies in various categories, such as financial planning software, but she said, Schwab quickly discovered that the categories are no longer as important. What’s most important is to choose the best vendors in the industry, Hathi said.

“That’s a bit of an evolution for us,” she said. “The foundation is still the same because it’s based on feedback from advisors.”

Schwab has forged formal ties with SalesForce, Salentica (a provider of advisor-modified Microsoft CRM) and Junxure. Tamarac’s integration with Microsoft CRM impressed Hathi. See: Schwab chooses some giant software partners, apparently with big RIAs in mind.

Tear down the categories

Brian Shenson, Schwab’s managing director of advisor technology, explained after the conference call that advisors don’t simply want the best of breed in one technology, they are seeking the industry’s top technology providers.

“In the past, we thought about it in categories of trading or financial planning but more and more we’re seeing that advisors are moving across these applications to achieve something for client service. The lines are blurring across the categories. The fact of the matter is providers recognize that lines aren’t so clear cut and their platforms are evolving. We’re not as focused on making sure we’ve got three trading systems in the program or three financial planning systems. We’re much more about making sure we’ve got the right platforms or technologies that advisors are going to rely on to run their businesses.”

Tamarac is platform leader

Hathi said that the best example of the firm’s new strategy is its relationship with Tamarac. Schwab chose Tamarac in May and while the company’s core capability is rebalancing, it offers so much more to advisors and is considered one of the leading providers in the industry. See: Schwab taps Tamarac as its next integration partner.

“They’ve created an integrated platform that’s gained a lot of traction in the marketplace,” she said. “Our focus is trying to identify platforms so we can identify integrations of the platforms that are leading the marketplace.”

The integration between Schwab and the Seattle-based division of Envestnet Inc. makes real-time custody data from Schwab Advisor Services available within the Tamarac Xi web-based platforms Advisor CRM and Advisor View. See: What Tamarac’s overhauling of its Advisor Xi has yielded.

Slow and steady carries risks

Still, Schwab’s slow and steady approach has its critics. On one hand, there are some merits to taking a thoughtful approach, says Franklin Tsung, vice president of AppCrown,LLC, there are some merits to taking a slower deep dive.

“You are trying to handle data from different software providers. It’s not easy and the platform play is smart. You bet on the market leader in their respective category. I would applaud the slow but profound strategy for a custodian — otherwise you risk moving before the market matures,” Tsung says.

Franklin Tsung: Schwab needs to talk less and do a little more about what they've been talking about.
Franklin Tsung: Schwab needs to talk
less and do a little more
about what they’ve been talking about.

But he acknowledges that Schwab is taking some risks and the strategy could easily backfire.

“Their approach is very different from everyone else out there,” Tsung says. “Schwab needs to talk less and do a little more about what they’ve been talking about. It’s better to ship something out then wait to come up with a perfect solution. You’ll never get a perfect solution. You need something that’s good enough for everyone to use and then enhance it.” See: How AppCrown got a big RIA footprint overnight by handling Salesforce implementations.

Strategy sounds familiar

Schwab’s competitors are way ahead of the firm in terms of integration.

And, Alois Pirker, research director at Aite Group., says that RIAs do need an integrated platform and not simply an “island of solutions.”

But he points out that this strategy is not that different from what Fidelity did with WealthCentral.

“Now, custodians can do the integration themselves, like Fidelity did with WealthCentral, which bears the risk that they will fit well for some RIAs but not so well for others. Or, you have a multiple platform strategy, where you partner with several and RIAs can choose. Clearly, the latter approach gives you less control over the platforms, however, allows you to get away from “owning” the platform,” Pirker says.

Fidelity ahead in the race

Fidelity has also been unquestionably an early leader to the integration game by choosing best of breed technology vendors Siebel, Advent and NaviPlan in 2009. But the company now has about a dozen firms on its WealthCentral platform. See: Fidelity is set to add Envestnet, Redtail, Morningstar, AppCrown and Salesforce to WealthCentral.

When Fidelity launched Wealth Central in 2009, there were just 50 advisors using it. Now, more than 2,000 do.

“Fidelity took the lead in developing technology for RIA workstations when we introduced WealthCentral — the industry’s first web-based wealth management platform that integrates RIAs’ most critical operational systems,” says Fidelity spokesman John Eidson.
“Advisors want choice and flexibility in their technology platform. We offer our RIA clients that choice through a multitude of technology providers in a single interface that provides increased access and deeper integrations with third-party providers.”

“Fidelity Institutional Wealth Services has more than 3,300 clients, and the vast majority of our RIAs use the platform,” Edison says, adding that more than 40% of users have downloaded a WealthCentral mobile app.

Competitors open up integration

TD Ameritrade has taken a far different approach than Schwab with its Veo Open Access and has integrated with more than 60 companies — small and large alike.

“We’re getting best of breeds as well as smaller innovative products,” says Jon Patullo, managing director of technology product management. “Our advisors can leverage very deep integrations with these providers.” See: TD Ameritrade’s promise of creating an RIA version of Apple’s app store may have found its prototype signing.

Rather than simply choosing the best companies, Patullo says advisors very clearly shared with the firm that they wanted choice and flexibility.

“Some of them do want us to help them out and others have unique needs but we realized one solution wouldn’t fit everyone,” he says. “We wanted a true open platform and we’ve seen a lot of success.”

Schwab’s integration going well

Hathi also gave an update of her firm’s integrations with Tamarac, Salesforce and Junxure, and said things are going smoothly. See: What Neesha Hathi has to say about Schwab’s oh-so-slow-but-steady technology initiative.

For example, she said, in recent months Schwab has sold 20 units of Integrated Office, which is the turnkey platform of Salesforce.com.

“It’s fabulous and right on track with where we wanted to be,” she says. “Advisors selecting that platform are really broad in terms of diversity. Some are transitioning from wirehouses and sometimes they’re just advisors who don’t like what they have today and they want something that is simpler, easier and more integrated and that’s what Integrated Office is providing.

Big uptick on Junxure and sales

Hathi said that since February more than 250 advisors have begun using the integrated offering with Junxure and Saleforce and says the split is about 50-50 between the two companies. “We’ve even launched more enhancements to Salesforce,” she said.

Workflow library

Hathi said the company has also continued to bolster its workflow library. “Whenever I talk to clients about this, I say, 'Don’t roll your eyes, you are going to like workflows. And once I show you the blueprint you’ll be shocked and amazed.’”

There will be a complete library of workflows by the end of the month — a total of 28.

Mobile apps

Hathi said that RIAs are increasingly interested in using tablets and mobile technology in their day-to-day operations. Schwab plans to introduce a mobile iPhone app this month and an iPad app by the end of the year. “The iPad seems to have such an overwhelming penetration in the marketplace,” Hathi said.

Tech talk

The firm has also been arming its relationship managers with talk about Schwab Intelligent Integration. Hathi said that the firm’s 75 relationship managers are spending a great deal of time helping RIAs understand the firm’s new technology offerings.

The firm also hosts solutions conferences and intends to do about 12 of them, with a total of 3,000 attendees, in July.


Mentioned in this article:

Envestnet | Tamarac
Portfolio Management System, CRM Software, Trading/Rebalancing, Performance Reporting
Top Executive: Stuart DePina

AppCrown, LLC
Outsourcer, CRM Software, Tech: Other
Top Executive: Ted Tsung



Share your thoughts and opinions with the author or other readers.

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Stephen Winks said:

June 14, 2012 — 1:25 AM UTC

Pete and JLL,

Both well said and you may well be right.

What a terrible inditement of the brokerage and custody industrys and its regulators who are charged to protect the best interest of the investing public.

Brilliant professional assessment that the consumer’s best interest will always be a secondary consideration to the brokerage and custody businesses which thrive on maximizing transactions cost counter to the best interest of the investing public ?

Advisory services in the client’s best interest is diametrically opposed to transactions services in the best interest of brokerage and custodial services.

Perhaps it is time for advisory services to develop its own identity—when there are no mitigating circumstances which conflict in the consumer’s best interests.

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J. L. Livermore said:

June 13, 2012 — 6:09 AM UTC

Mr. Giza,

I do not believe that CS or most other custodians and certainly not the BDs, have much interest in listening to you or anyone else about these issues. They all have a long history of this type of behavior and don’t take kindly to being told the emperor has no clothes.

I find it amazing that no other vendor has expressed themselves publicly regarding this. Then again perhaps they are looking at the potential political ramifications.

After watching the behavior of the markets for the past century and observing custodians the likes of CS and others, I would be simply amazed if what you propose even made it past your writing here.

Its ashamed that everyone is so focused on their own agenda rather than the industry and it’s constituency they are supposed to serve.

JLL

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Peter Giza said:

June 12, 2012 — 2:09 AM UTC

Steve,

I am not clear on what it is you are espousing. What I will say is that we are in violent agreement that a new wave of technology is here and it represents a seachange in the way firms can and will conduct business. This does not obviate the need for standards whether official or de facto accepted as in the case of most Internet standards of past.

If you believe that any one platform is going to be the panacea for finserv then I think you should look to the sell side or prime brokerage arena for that one platform – it doesn’t exist and there is a lot of experience on that side of the investment house.

History shows that rarely does the best technology win. The Indian Motocycle company had more advanced technology than its’ archrival Harley Davidson, yet H-D won the battle – why? Because H-D was a very marketing savvy company and it knew that that was the real battlefield. During the depression, H-D delivered scant few units but kept itself alive selling accessories.

The same holds true in this space. If the winds of marketing and sales are not in your favor it doesn’t matter how great your technology is. Add to that the independence factor, lack of understanding, misinformation and you get fragmentation.

Also keep in mind that the banks, custodians and BDs wield great power and if they don’t want to play with you they don’t have to. It’s all about cooperative effort.

Pete

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Stephen Winks said:

June 12, 2012 — 12:03 AM UTC

Pete,

The challenges you cite are a matter of how one approaches portfolio construction and are easily resolved. Retail packaged products are not conducive to portfolio construction in terms of cost, transparency, data accessability and technology. Essentially retail products create unmanagerable problems in portfolio construction which render them obsolete as you have cited. It is up to the management of packaged product companies to adapt, or perish.

Our top private banks can manage an unlimited number of unique custom portfolios in accord to expert fiduciary standing at a fraction of the cost of a packaged product which can not be client specific by limitation of prospectus requiring a specific generalized investment mandate.

We are about to see large portions of advisory services support for brokers to be rendered obsolete by a new wave of technology (asset/liability study, investment policy, portfolio construction, monitoring and management) specifically designed to support and authenticate expert fiduciary standing.

It is best to forget about putting a square peg in a round hole, no matter how hard one tries it will not fit. A new approach is required that is designed to support fiduciary standing.

There are significant economic incentives to advisors and their supporting firms to support modernity and fiduciary standing in the best interest of the investing public.

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Peter Giza said:

June 11, 2012 — 4:53 PM UTC

Steve,

The main issue is there are no common custodial standards that define bid-directional data, work and messaging flow – note the word “common”. While each custodian may have an “pen standard” it is at best open only to vendors because no other custodian is going to leverage the work of the competing custodian. There are no collaborative efforts among these platforms to make it easier for clients and vendors alike. Why? – fear of asset erosion.

Several months ago an open standards collaborative was floated to several CXOs within the custodial ranks as well as market analysts. The result? Only TD Ameritrade responded. The collaboration included RIAs, Custodians, Technology Vendors as well as industry analysts and other sources of intellectual capital.

The problems are so basic yet there are no common solutions. For example:

1) The reporting side doesn’t consider what the trading side needs – left brain .vs. right brain.

SYMBOL = FPA
CUSIP = 123456789

REPORTING:

SYMBOL = FPA

CUSTODIAN:

Custodian A, symbol = FP.A
Custodian B, symbol = FP-A
Custodian C, symbol = FP/A

TRADING:

Symbol = FPA

This example shows the lack standards between custodial systems that have an enormous trickle down effect on portfolio management (PMS) and trade order management (TOM) systems. Every PMS now has to carry a translation table to manage the internal custodian symbology.to a publicly traded symbol.

If the PMS doesn’t send the translation data to the TOM, now the TOM has to have a translation table which represents yet another management data management point and opportunity to inject errors.

2) The publicly traded symbol CASH is used by some systems as an internal identifier. This is just PLAIN WRONG. Never should a publicly traded symbol be misused as an internal identifier that can make its way into the public in any way shape or form.

3) CUSIPs are gospel. How is it possibly OK to tack anything onto a CUSIP whether pre or post-fix?

I could go on and on…

Now, certain persons would like to use what I have outlined to argue that all-in-one solutions are better because they don’t have these problems – right? Wrong. All-in-one solutions have to solve the same problems, they just get to do it behind the scenes because the own every single data flow source.

What it should say to the reading audience is that technology vendors who offer freedom of choice and independence (see the audiophile reference in the previous posts) are working very hard to make all the cruft we put up with as invisible as possible. Occasionally a bump in the road comes into light but those bumps are usually smoothed out pretty quickly.

In closing I say that until the industry, including the very RIAs that are being served, takes these issues seriously and collaborates, it well be the same ole, same ole. And that means the onus will be upon the technology vendors to deal with unending workarounds to shield the end-user from the maelstrom.

Pete

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Stephen Winks said:

June 11, 2012 — 2:39 PM UTC

Pete,

Schwab’s challenge is it is it is building a house without plans and is starting with the roof first.

If it is trying to support advisory services so it is authenticated to be safe, scalable, easy to execute and manage as a high margin business at the advisor level which simplifies advice, all of which advisors covet, it must build it around anexpert authenticated prudent process (asset/liability study, investment policy, portfolio construction, monitoring and management) in the advisors best interest. There should be multiple vendors for each element of the prudent process which mitigates Schwabs fiduciary liability as the advisor makes a choice of vendors.

For example, account aggregiation is central to the Asset/Liability study. Account aggregiation vendors like By-All-Accounts, simply need to create and authenticate an expert Asset/Liability Study which is an important (some would argue the most compelling in sales) element in a expert authenticated prudent process in support of fiduciary standing in the consumer’s best interest. This capability would be a mustt have not a nice to have tool for every advisor as it establishes a clear understanding for the consumer exactly how all their assets and liabilities look as a portfolio essential for the continuous comprehensive counsel required for fiduciary standing.

By Schwab focusing on the big picture intellectual capital that are required to support fiduciary standing, it moves from aggregiating desparate technology and increasing complexity to actually solving problems central to acting in an advisory capacity. What is missing is an understanding of advice/fiduciary standing which manages disperate technology into an inexpensive easy to use system.

The audiophiles question you raise is on target, do we want every advisor to become a process and technology expert each having to reinvent the wheel, or do advisors just want to use the expert process and technoloy to deliver expert advice. It is like having a physician having to invent a heart and lung machine before they can practice medicine. Advisors want expert authenticated systems they don’t want to build them.

The best thing Schwab could do is to sponsor a mapping of resources that would make advice safe, scalable, easy to execute and manage as a high margin business at the advisor level and let the free market fight it out on the basis of the depth and breadth of counsel supported. Wall Street would be at a loss because of its cost structure and inability to adapt as the solution is built around the best interest of the consumer and the advisors that serve them. Schwab would win big.

SCW

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Peter Giza said:

June 8, 2012 — 7:12 PM UTC

Steve:

I will not claim to be a compliance or regulator guru – I am not. The issue at question here has all to do with putting forth a consistent message by Schwab to its RIAs and technology partners.

While you are correct that the automobile wasn’t built around the carborator (sic), it was built around collaborative efforts of various designers, manufacturers. It took the brilliance of Henry Ford to put them together to build line production and the rest is history.

If Schwab want to be the Henry Ford of technology in this industry the message and the management of technology partners has to be consistent. I am not saying things cannot shift to meet changing demand, but we haven’t even got out of the parking lot.

Users of technology like RIAs fall into two very basic camps; all-in-one and best component for the application. The all-in-one choice takes no real thought and the mentality is usually “no one gets fired for choosing IBM”. On the other hand making a proper choices based on your business need and application takes work and forethought.

Why do audiophiles but individual components, even stressing over which diamond stylus is best suited for a certain age and type of vinyl? You won’t see them buying a boom box or console stereo system – ever.

Pete

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Stephen Winks said:

June 8, 2012 — 3:00 PM UTC

Pete,

The key to the simplification and ease of execution of expert fiduciary standing is prudent process (asset/liability study, investment policy, portfolio construction, monitoring and management) authenticated by non-negotiable, unassailable fiduciary criteria of statute, case law and regulatory opinion letters which expert fiduciary advice safe, scalable, easy to execute and manage at less cost than a packaged product.

The focus of advisory services support if it is to be effective for advisor use must shift from abstract incremental innovation, to a comprehensive fiduciary solution which requires a simplifying expert authenticated prudent investment process around which continuous enhancements are made. If technologist can focus on the consumer of their technology—the advisor—massive strides can be made in technological innovation and adoption, fostering an unprecedented level of investment and administrative counsel.

The development of the automobile was not built around a carborator but the vehicle. The industry is presently focusing on the carborator, not the vehicle that makes fiduciary standing safe, scalable, easy to execute and manage.

Schwab is trying to be helpful, but can’t because it does not want to incur fiduciary liability. The entity which can effectively manage fiduciary liability can reorder the entire financial services industry around expert fiduciary standing at a fraction of the cost consumers are paying today, affording advisors far higher margins than can be achieved today.

The modernity that is comming makes todays SRO discussion irrelevent, as why wouldn’t everyone want to act in the consumer’s best interest. Modernity waits for no one.

The anachronistic regulatory authority based on a world of 70 years ago when computers and ERISA did no exist, is about to be brought into the twentyfirst century, regardless whether brokerage interest want to support the best interest of the investing public or not. In a free market, there has never been an incidence where the consumer’s best interest did not prevail.

Yes brokerage interests are trying to craft a less than free market, where regulators are paid by the brokerage industry at the expense of the trust and confidence of the investing public and at the expense of the most professional group of advisorsin the industry focused on the best interest of the investing public.

Let’s hope if the brokerage interests prevail over the best interest of the investing public, there will still be those who champion the best interest of the investing public. Yet today, the likelyhood of one welcoming those conversations within a brokerage firm or regulator, does not bode well for the restoration of the trust and confidence of the investing public.

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Peter Giza said:

June 8, 2012 — 5:38 AM UTC

Speaking as a development and technology partner, this constantly changing message of who and what are considered viable SII integration partners is at best frustrating. RIAs are frustrated too. Several have asked me when will Schwab open access to their trading platform and we have to say “it’s coming, we just don’t know when.” Not exactly the position you want to be in. However RedBlack remains cautiously optimistic that the answer is “real soon”.

Kind regards,

Pete

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Stephen Winks said:

June 7, 2012 — 7:34 PM UTC

Schwab’s challenge is incremental innovation adds complexity, the simplicity desired by all with out denigration of expert fiduciary standing can only be achieved with a comprehensive solution.

Yet as a custodian Schwab can not be comprehensive in its approach to enabling resources (authenticated prudent process, advanced technology, work flow managemenr, conflict management, expert advisory services support) as in doing so its support becomers prescriptive for expert fiduciary standing thus triggering fiduciary liability.

Thus, it will not be a custodian that supports advisory services, nor will it be a brokerage firm. Large scale institutionalized support for fiduciary standing will come from an RIA with none of the conflicts of a brokerage firm.

Will it be Focus or HighTower or will it be a third technology party vendor like Adhesion, no one knows. What we do know is what is required and how to make expert authenticated advice safe, scalable, easy to execute and manage as a high margin business at the advisor level. It is a daunting task as technologist do not understand advice and advisors do not understand technology and work flow management.

The question is whether advisors and technologist can work together to formulate a free enterprise solution with an unprecedented consumer value proposition which will transform the financial services industry.

SCW

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Stephen Winks said:

June 7, 2012 — 7:34 PM UTC

Schwab’s challenge is incremental innovation adds complexity, the simplicity desired by all with out denigration of expert fiduciary standing can only be achieved with a comprehensive solution.

Yet as a custodian Schwab can not be comprehensive in its approach to enabling resources (authenticated prudent process, advanced technology, work flow managemenr, conflict management, expert advisory services support) as in doing so its support becomers prescriptive for expert fiduciary standing thus triggering fiduciary liability.

Thus, it will not be a custodian that supports advisory services, nor will it be a brokerage firm. Large scale institutionalized support for fiduciary standing will come from an RIA with none of the conflicts of a brokerage firm.

Will it be Focus or HighTower or will it be a third technology party vendor like Adhesion, no one knows. What we do know is what is required and how to make expert authenticated advice safe, scalable, easy to execute and manage as a high margin business at the advisor level. It is a daunting task as technologist do not understand advice and advisors do not understand technology and work flow management.

The question is whether advisors and technologist can work together to formulate a free enterprise solution with an unprecedented consumer value proposition which will transform the financial services industry.

SCW

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Elmer Rich III said:

June 7, 2012 — 5:20 PM UTC

Very ambitious. Realistic? Is there a precedent or model of such an widespread tech integration being done successfully? Even from other industries?

Anecdotally, we are seeing tech problems multiply as complexity increases — not the other way around. Would seem prudent to have some hard data and evidence before proceeding. That could take years of hard expensive research. That will not happen.

There is a lot of hope and hype around tech. For example, the social media “promise” of saving you time if you spend (a lot) more time on social media!? Kind of silly.


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