Mike Golaszewski: If your product has an advisor end-client-facing component and it's not mobile, you probably don't have a product in two years.

Where RIA technology stands heading into 2013 after 2012 lost some steam

Philip Palaveev, Mike Golaszewski, Spencer Segal and Joel Bruckenstein weigh in on whether the 'mega-solution' will gain traction vs. the mix and match option

January 2, 2013 — 5:30 PM UTC by Brooke Southall

10 Comments

Brooke’s Note: My apologies for the lost-some-steam portion of the headline to this article. But when I sprayed out e-mails to an esteemed list of people in the RIA business asking for what they considered to be the top technology bright spots in 2012, the general response was that it was a year of apparent drowsiness. This assessment, of course, activated my contrarian hunch that in fact this was a huge year in technology — but I’ll save that for the coming article. For this article, I cede the floor to people who live and breathe the business every day and whose views should not be lightly regarded. Mike Golaszewski, a top Advent-Black Diamond technologist, took the boldest crack at defining the bleeding edge and he bats clean-up in this compendium because of that and because he plays off a couple of comments made.

Philip Palaveev, chief executive of The Ensemble Practice

I think we are in the middle of a very important process that has been under way for the last few years.

The biggest technology question in the industry today is whether the technology environment of an advisory firm in the future will be defined by a number of separate, independently owned software solutions or by a mega-solution that incorporates and integrates all aspects but perhaps absorbs too much control and influence.

The multivendor model promotes the sense of independence, advisor ownership of the data and the solution, and gives advisors as customers the negotiating power. It is also transparent and does not allow for software to become the gateway purchase to custodian or broker-dealer services. This model, however, implies fragmentation, asks the advisory firm to absorb the cost of system integration and perhaps is not as economically viable as separate vendors that are not large enough to reach critical mass and compete. See: RIAs flock to Dallas for the T3 technology conference.

The alternative is the mega-solution that promises integration and scalability but perhaps comes at the expense of “captive” data and a tie-in with a platform — a turnkey manager, custodian or broker-dealer. See: Beta test of Schwab’s grand integration plan draws rave, but will the slow rollout prove detrimental?.

The mergers that we are witnessing are in my mind a step towards the mega-solution — with several companies putting the pieces to together. That said, the flag of independent software solutions continues to wave high as well, with products such as Junxure continuing to hold the majority market share (for their particular app). Advisors may not realize it but they make a choice between those two alternatives every time they choose to replace or renew a key system. See: Greg Friedman is set to finally bring Junxure to the cloud and beat back the Salesforce-ification of the industry.

Philip Palaveev: The flag of independent software solutions continues to wave high.
Philip Palaveev: The flag of independent
software solutions continues to wave high.

I was also very intrigued with the investor-friendly technologies that allow investors to access their data in a better way and also for advisors to present their work to investors. I have had a biased exposure to the Finance Logix customer portal and tablet software since they are in Seattle, but I am fascinated at how theirs and other similar designs not only change the presentation of data but perhaps the way we think about planning. See: Finance Logix makes a splashy bid for RIA business with its inaugural conference in Las Vegas.

Finally I am surprised that we are not seeing more customized enterprise planning systems targeted at large RIAs. The largest firms need a complex solution for billing, internal time management and resourcing planning, and at the moment many still use spreadsheets or jury-rigged fields in their portfolio reporting system to keep track of staff utilization, team capacity, billings by professional or partner and other important factors. Such enterprise systems are common for law firms, CPA firms, PR agencies, etc., and perhaps they will appear for large advisory firms too.

Spencer Segal, CEO of ActiFi Inc.

There has been continual innovation in the tech space — most of the major vendors we track have had major upgrades to their platforms. See: 'Ocean’s Eleven’-grade RIA sharpies set to play Vegas at MarketCounsel’s 2012 Summit.

The biggest issue in the tech space is that the technological capabilities are becoming more robust and the integration landscape more confusing, and advisors are struggling to figure out how to get a robust return from the investments that they have made in new technologies.

Joel Bruckenstein, producer of the T3 conferences

There may not have been a lot of blockbusters, but I think it has been an important year technologically. There was nothing really big at Schwab IMPACT, although there are incremental improvements taking place. See: The 2012 Schwab IMPACT conference comes off with a theatrical flair.

TD Ameritrade seems to be doing very well with its technology initiatives. MoneyGuidePro was a big deal. I think FinanceLogix RIO was noteworthy. Apple Mountain Lion and more-robust Apple hardware across the board. Windows 8 is very important in my opinion, although I appear to currently be in the minority. See: From Schwab IMPACT’s dizzying array, one free agent tabbed FinFolio and its use of Windows 8 as a takeaway.

Laser App Software is moving to the cloud. Advent is moving to the cloud. See: A year after the Advent-Black Diamond deal, the merged company is making some big chess moves.

I think 2013 will start off with a bang. Look for a number of compelling technology stories to come out at the 2013 T3 Conference. See: Joel Bruckenstein and Bob Veres part ways to do their own conferences.

Joel Bruckenstein: Windows 8 is very important in my opinion, although I appear to currently be in the minority.
Joel Bruckenstein: Windows 8 is very
important in my opinion, although I
appear to currently be in the
minority.

Mike Golaszewski, managing partner of Element-12; senior director and head of product for Black Diamond.

I think we are in the middle of a very important process that has been under way for the last few years.

If anything, I’ve noted a tremendous amount of new technology investment in the RIA space that started to be notable around 2009. It’s as if vendors suddenly realized that there is real money here.

I don’t think the “mega-solution” is one that matches advisors’ spirit of independence. When I was at Schwab, we used to joke that we had 6,000 small business as clients and they all had 6,000 different ways of doing the same thing.

Advisors like choice, they each have a slightly different focus and value proposition, and they each bring a unique way of doing things to the table. My belief is that they will continue to pick the vendor solutions that best match their practice and/or focus, and work to get them integrated (more below).

I don’t see the “mega-solution” ever gaining traction. There is just too much differentiation to make a “one-size-fits-all” platform viable. See: Addepar hits $50 billion of assets and turns its eyes to Advent-Black Diamond’s plump RIA market.

I think the more pertinent question is how many advisors will begin choosing to outsource their technology. It’s not academic. There was a tremendous —tremendous!— amount of discussion around “cloud technology” when I was at IMPACT. But more impressive to me was the depth of understanding that many principals had about what “cloud” actually means (in other words, it’s now more than a buzzword). There’s a huge cost and efficiency gain for all scales of business when all you have to support in your office is a browser. It’s exactly why companies like Salesforce are making rapid gains in our space. See: Greg Friedman is set to finally bring Junxure to the cloud and beat back the Salesforce-ification of the industry.

I can answer one question directly: the companies that risk obsolescence are those companies that make you install a fat client (i.e., “software”) on your desktop. Software is going away. And by the way, so is the desktop. See: Advent envisions a cloud-based world under stormy Las Vegas skies at the software giant’s annual confab.

The multivendor model promotes the sense of independence, advisor ownership of the data and the solution, and gives advisors as customers the negotiating power. It is also transparent and does not allow for software to become the gateway purchase to custodian or broker-dealer services.

This last point is a big deal for advisors. It’s one of the reasons why NetX360 will never capture the mindshare in RIA-land that it commands in IBD-land. See: How a big Atlanta RIA kept sledding with technology after snow paralyzed the city.

I don’t agree completely with Palaveev’s point that this [choose-your-own] model, however, implies fragmentation, asks the advisory firm to absorb the cost of system integration and perhaps is not economically viable as separate vendors are not large enough to reach critical mass and compete. Depends on the market you are playing in. There is plenty of room for completion in the [portfolio management system] space, for example. However, it’s really hard to make money in rebalancing, for example. I expect that some of the smaller companies in this space won’t be around as independent for much longer.

In response to Palaveev’s point that: “The alternative is the mega-solution which promises integration and scalability but perhaps comes at the expense of “captive” data and a tie-in with a platform — a turnkey manager, custodian or broker-dealer.”

There is a different alternative here that you are starting to see play out, especially on the custodial side. Advisors have gotten smart and are starting to demand open access to their data and interoperability of systems. This isn’t a mega-solution, but it’s a nascent demand for standards that allow their custodial data to flow seamlessly from one system to the next.

This is what I think will happen, and this is when I think the technology landscape explodes. It happened years ago on the buy-side; vendors who play in that space are virtually forced by their mutual clients to play nice with one another and make sure that their systems talk to one another. They’ve been forced to develop standards and protocols and other things that ensure this interoperability.

RIAs never had the gravitas or collective power to force their custodians and vendors into doing the same thing, but that is starting to change. Look at TDA’s open-API model, Schwab’s subtle shift in strategy with SII (I predict this will move to an API model in a few years), and Fidelity’s embrace of API integration for its WealthCentral partners. See: TD Ameritrade showcases what API can do with slick Veo-iRebal harmonization.

The real future isn’t a mega-solution: the real future is turnkey interoperability between key systems that will be driven by advisors’ demands and most likely led by custodians and large technology vendors. It happened on the buy-side; it will happen on the sell-side.

In response to Palaveev’s point that: “The mergers that we are witnessing are in my mind a step towards the mega-solution with several companies putting the pieces together.”

Don’t completely agree. I think some of the mergers that you’ve seen are prompted by a tough market position (Tamarac, RedBlack, iRebal play[ed] in an extremely thin market with not a lot of revenue potential) and a desire to fill in perceived gaps within your product offering (Envestnet can now say that it has a leading rebalancing solution in its arsenal).

To Palaveev’s point: “That said, the flag of independent software solutions continues to wave high as well, with products such as Junxure continuing to hold the majority market share. Advisors may not realize it but they make a choice between those two alternatives with every time they chose to replace or renew a key system.”

Where I don’t disagree is that I think that several categories will see dominant winners. Some may be the same providers that sell you products in other categories. But I don’t think it’s a “mega-solution.” Advisors will always want to mix and match, because they look at their businesses uniquely. What they want is seamless work flows, and that’s what will cause them to demand (and ultimately get) the interoperability between vendor platforms.

Bingo! Consumers have been spoiled by the mobile Internet. And they are going to be demanding the same easy access to information—in an intuitive, simple manner—from their advisors.

If your product has an advisor end-client-facing component and it’s not mobile, you probably don’t have a product in two years.


Mentioned in this article:

Kestra Financial
RIA-Friendly Broker-Dealer, Recruiter, RIA Seeking to Hire Advisors
Top Executive: James Poer, President and CEO

The Ensemble Practice LLC
Consulting Firm, Outsourcer
Top Executive: Philip Palaveev

Junxure
CRM Software
Top Executive: Greg Friedman

Finance Logix
Financial Planning Software
Top Executive: Oleg Tishkevich

Technology Tools for Today
Consulting Firm, Conference
Top Executive: David J. Drucker

ActiFi, Inc.
Consulting Firm
Top Executive: Spenser Segal



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Mr. J. L. Livermore said:

January 3, 2013 — 4:51 PM UTC

Mr. Winks,

What? Could you repeat in the vernacular?

JLL

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Stephen Winks said:

January 3, 2013 — 4:36 PM UTC

Pete,

We are at the tipping point, where cost functionality and scale will win the day. Process is the great simplifier of the complex advisory services considerations which must be managed.

With the interjection of a simplifying expert authenticated prudent investment process, Addepar and others have a major role to play simply by exercising intiative. Yet either independent software vendors must adapt to a simplifing process and merge to streamline cost or more comprehensive solutions built around process will be far less expensive and afford superior functionality.

The tension is on the expense and quaity of incremental functionality versus less expensive comprehensive functionality that affords expert fiduciary standing with an audit path and opinion letters to prove it.

Based on the comments here, the faster, better, cheaper complete though wins over any incremental consideration.

There are systems emerging here and in Singapore and Hong Kong that actually are supportive of a fiduciary standing. Our committment to non-fiduciary, expensive packaged products and our inability to support the free flow of data is crippling the ability of the US to compete world wide, where fiduciary standing is required and commission sales are prohibited in advisory relationships.

SCW

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Peter Giza said:

January 2, 2013 — 11:54 PM UTC

Brooke,
My two cents:

First I have to get this off my chest: CRM is just CRM. There I’ve said it. How CRM became the platform of choice for business process automation is beyond me. But here we are and Salesforce isn’t going to just disappear. Go to a Salesforce event and see the 100,000 cheering zealots. The cult of consulting reigns ever powerful.

Something Mike Golaszewski stated struck me: “Consumers have been spoiled by the mobile Internet.” and it isn’t just consumers, we all have been spoiled. It’s all about simple. That is one reason Apple is so wildly successful.

This key tenet all product czars must consider when considering a new product or repurposing an existing one. It doesn’t matter what it is, if you are not thinking mobile then you are missing the boat. I am not saying every app should go mobile. What I am saying is you must think mobile during the product definition and development phase.

I don’t agree that the desktop is dead, however it is in jeopardy if ISVs (Independent Software Vendor) don’t have a strong cloud analog they will be looking at a vastly diminished addressable market. Desktop apps will have their place due to complexity of the workflows and performance requirements. If this wasn’t the case the likes of Lenovo and Dell would not continue to invest in mobile workstations like the Lenovo W530 this was composed on.

I also do not agree that there is no place for the Addepars of the world. If they get it right they will compete against portfolio accounting and performance management products. And as has been echoed by advisors and is constantly stated by Advent / Black Diamond; why would you exit your PMS to go to a separate rebalancing platform or otherwise? Right now the answer is because no mega-solution has a good RIA rebalancing platform. However that will change in the not so distant future.

What I see for 2013 through 2015 is a continued move toward API access (like TD) of BD and Custodian and mega-solution platforms. They already have the APIs they just don’t advertise them but that is going to change over the next few years. Just how bad could it be for an advisor if they could leverage Addepar, Advent, Orion, Tamarac, Schwab and TD? Of course that is completely dependent on the level of cooperation between vendors, but it could easily be reality.

Several of my colleagues have balked at the idea of a common data exchange and rich integration. However it is happening under our noses. Maybe not in the way I have proposed, but it is still happening. And it is happening via a force far more influential than any RIA firm or custodian – the consumer. John Q. Public is pushing for more access, simplified views. easy yet secure access to data and they are pushing everyone and in every industry.

Gone are the days of data captivity practiced by so many vendors; everything is open. Pragmatically speaking we are still data captives, but that discussion is for another day.

Pete

Pete Giza | Spitbrook LLC

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Franklin Tsung said:

January 2, 2013 — 6:02 PM UTC

SCW,

I wholeheartedly agree with you, and the premise of contact management being contact management.

The comment about Force.com and Salesforce evolving from the sales teams into a broader platform is to give some background to the CRM’s story.

They started first with Merrill Lynch (the brokers broker), and then evolved the “Wealth Management” template from that. It doesn’t go beyond the template.

AppCrown, where my sole passion lays, is our approach – that advisors are household focused and people focused, not product related. To this extent, we took the approach to integrate 3rd party systems into business functions, and deliver that by using the contact system from Salesforce (which is scalable from an technology deployment perspective).

Coming from my background in operations research, any platform, IT or focus must address the business of the end user community. AppCrown’s not a consultant, so we largely integrate disparate systems that advisors acquire to support their HNW families (financial planning, portfolio accounting etc), into unique business applications – Whereby the CRM is transformed into an operating system, giving the advisor alerts to when an client account has deviated from the IPS (investment policy statement) or whether the household is at risk based on data compiled and merged between financial planning & portfolio accounting systems like BlackDiamond. We largely focus on predictive analytics and ways to extend the notion of contact management.

I was largely agreeing with you that Salesforce as a whole – being a generalized platform – misses the point of the niches’ and would fall flat – following the concerns you’ve echo’d from Clayton Christensen. To that extent, Salesforce relies on niches to fulfill business applications within that niche.

But I am very interested in your view point of mobility and 2nd generation wealth. Many of my clients grapple with transitioning to the next generation, and how to stay connected in an more transaction-minded generation. What are your thoughts??

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Stephen Winks said:

January 2, 2013 — 1:17 PM UTC

FLT,

I appreciate your ernestness.

But CRM has no more bearing on advisory services than it does on a surgical practice, Though thoughtful how does a telephone book impact anything. There are technical considerations that establish the parameters of every profession and define professional standing.

A telephone book is helpful; but hardly affects advisory services and certainly has not statutory imperative. CRM is very helpful in sales applications where there is no accountability or responsibility for recommendations. Yet when the advisor is accountable and responsible, the technical disciplines of (a) an authenticated prudent investment process which make advice safe to render and acknowledge, (b) advanced technology which supports transparency, continuous comprehensive counsel and modern low cost approaches to portfolio construction which are required for fiduciary standing,(c) work flow management which make advice scalable, easy to executer and manage and (d) conflict management which makes it possible to act in the best interest of the investing public —all are outside the core services you cite—hardly a complete picture. Would not want to misrepresent AppCrown as a “know it all” consultant, would you not agree?

You have a very narrow sales niche which treats advice as a product the broker sells rather than an expert authenticated prudent process advisors manage. Please do not try to establish equivalency, it is an afront to statutory requirements for fiduciary standing, counter to the best interest of the investing public and offensive to advisors who address and manage investment and administrative values on behalf of the consumer in the consumer’s best interest (as opposed to selling investment products as a series of disjoined unrelated transaction where it is literally not possible to add value). Your services are focused on sales people without professional standing in advisory services, not avisors.

SCW.

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Franklin Tsung said:

January 2, 2013 — 5:03 AM UTC

Stephen,

Have you also read crossing the chasm? That is also another good book around disruption. Salesforce’s model is liken to that of peoplesoft. It built a great niche around sales team and an engine for professionals of any business size to scale their sales force. From there, it realized to be a general platform, it developed “Force.com”.

Force.com being the underlying engine that powers Salesforce’s core product line – their sales and marketing platform. They call their core platform Sales Cloud.

Within the niche, Salesforce defers to “know it all” consultants, and there is never a limit to the number of consultants that permeates any industry, whether broker dealers, RIA to manufacturing etc.

What we started at AppCrown was a way to bring institutional integration and advisor logic into the retail space. Our premise was to package all the integrations to major custodians (i.e. TD Ameritrade), and 3rd party software into a whole product. The platform AppCrown would distribute this on is Force.com (Salesforce’s engine). We did not want to replicate another CRM, and become a RedTail or Junxure. (As a business, you could never sell to enough advisors and at the same time reinvest retained earnings into R&D expenditures to make EBITDA).

Essentially, what this comes down to – is our mindset is to give advisors a complete picture, leveraging the latest CRM. For example, a financelogix or moneyguide pro integration for us takes 5 minutes to setup as it is prebuilt on our business platform. The end product for the advisor is a CRM system that integrates all back office and software so the system becomes proactive- and that the business CRM truly alerts the financial advisor to key follow ups and analytics about their clients. This allows the practice to scale.

The technology must appeal to the hurdles of any independent RIA firm. If you think about financial advisors – the independent movement, many fall into the small business trap; whereby the scale ends at about 100 household or $100MM in AUM. There is some wall the advisor hits, and the focus immediately turns to “let’s hire to scale”. This trap saps away enterprise value. To any acquisition firm, they look at your firm as an annuity if your practice stagnates and just entertains consistent income (In effect the advisors multiples decays over time). The technology needs to address real needs.

Now, we don’t speak for all of Salesforce implementations, only to a certain small percentage of them, but the perspective to take is that unless anything is taken into the right context and the right understanding of how technology applies to a niche – well, then you fall into what Hayden had mentioned and you’re wholeheartedly correct – the biggest mistake made by established industry’s make when faced with industry redefining innovation, is to look at innovation in the context of its existing business model when a new business mode is in order.”

Bests
FLT

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Stephen Winks said:

December 31, 2012 — 11:45 PM UTC

The flow of data is extremely important and expert authenticated prudent process is required to simplify advisory services without denigration of expert standing. Neither lend themselves to an incremental solution as scale and the streamlining of cost are precluded. Scale, cost and expert standing direct us to a far more sophisticated and less expensive approach to portfolio construction, not possible in a packaged advice product limited by prospectus..

There are innovations under radar advanced by none of the vendors cited above which through conjoint reasoning will mathmatically weight more than 50 client considerations in order of importance which makes expert personalized advice (fiduciary counsel) possible for the advisor to manage an unlimited number of custom client portfolios. This renders packaged products obsolete in terms of cost, values expertly addressed and managed and technical competency engaged and executed.

Further advances in global strategic asset allocation utilized by soverign wealth funds which Markowitz cites and documents as the best methodology in the industry will finally be available to retail advisors as a service, as the mathmatics and global business accumen entailed are beyond the reach of the retail advisor at a reasonable cost. This resolves the limitations of retail optimizers with four patented, peer reviewed and proven enhancements to MPT, to include the better use of data.

Custodians, broker/dealers and roll-ups which simply extrapolate the brokerage approach to advice by treating advice as a product brokers sell rather than an expert prudent process advisors manage, will not be the venue from which advisory services innovation is advanced, as each is structurally crippled by their inability to manage the necessary fiduciary responsibility/duties on behalf of their brokers to literally act in the consumers best interest. This is acknowledged by the industry in its position that the DOL’s fiduciary standing requirement will preclude brokers from handling retirement assets.

Given the advances underway in technology, portfolio construction and expert authenticate prudent investment process, the industry will be reordered areound fiduciary duty in the best interest of the investing public which will render conventional brokerage obsolete as a high cost low margin, low value added alternative.

The advisor and the consumer understand these redefining market forces at work, if the industry remains insular to the public trust and the best interest f the investing public 2013 could be the year that our largest institutions become irrelevent and lose share to those that professionally manage expert fiduciary standing in ways not presently possible in a brokerage format.

Harvard’s Clayton Christensen observes, “the biggest mistake made by established industry’s make when faced with industry redefining innovation, is to look at innovation in the context of its existing business model when a new business mode is in order.” As Edwards Deming observed, “if you can’t define what you are doing in terms of process, thenn you don’t know what you aare doing.” Both observations are presient.

SCW

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mike costellano said:

December 31, 2012 — 9:56 PM UTC

I come from a heavy Salesforce.com shop (my former BD) and feel that many of my peers went that route because they were presented Salesforce first and in some cases solely because of the strength of their name (Salesforce). Many are spinnning their tires and have multi year contracts.

My primary custodian, TD Ameritrade supports the multivendor model with their “Open Access” architecture allowed me to keep tools I was already using (LaserApp and MoneyGuide Pro) and also hook up Redtail CRM so that I get TD account data fed in. Redtail in turn feeds MoneyGuide Pro and populates forms via LaserApp. All of my tools talk to each other with no heavy lifting on my end.

I’m sure other custodians have similar open access initiatives but what made me opt for Redtail is knowing that I own the data regardless of any affiliate pricing incentives.

The most important take away from the article is the mention of advisor ownership of data.


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