News, Vision & Voice for the Advisory Community
The 'next-generation portfolio management system' takes data cleanliness into a godliness realm but competitors and observers offer sharp criticism of the plan -- and its mushy deadline for completion
November 12, 2013 — 5:10 AM UTC by Brooke Southall
The head of RIA technology at Schwab has announced a power play by her company’s Raleigh, N.C., software division and her own custody division aimed at fulfilling a “new vision” with a program called Project PM.
Neesha Hathi, Schwab Advisor Services’ senior vice president for advisor technology solutions, told the assembled 1,500 financial advisors at Schwab IMPACT in Washington, D.C., that Schwab Performance Technologies is looking toward a time when Schwab data and the data on the portfolio accounting system are the same. SPT is the maker of Schwab PortfolioCenter. See: Schwab PortfolioCenter may be poised to shed its utilitarian image.
The idea is that an advisor won’t have to reconcile data — and that that will pave the way for a variety of good outcomes..
“We have a new vision for portfolio management that will access custodial data directly, create dashboards, reports and presentations rapidly,” Hathi stated in a press release.
Schwab provided no timeline for when this capability might become available, but Hathi indicated that there will be more to say about it in another year, according to sources who heard her speak. See: Why the whiff of another delay of Schwab’s ETF-only 401(k) plan is drawing so much attention.
'Restart button’ and the 'gorilla’
Schwab’s move could pay off because it plays on the advantages of being the big, dominant RIA custodian, according to Franklin Tsung, principal of AppCrown LLC.
“It’s a bold move but it’s a bet that will most likely pay off in a great way in the long run as newly developed capabilities built on today’s web-capable technology will naturally challenge the value proposition of its competitors. There is no other competitor with the resources to press the restart button while supporting the existing product. Schwab recognized its gorilla status and is leveraging it in the best way possible.”
It’s a “very cool” idea because clean, reconciled data are the starting point for anything that can get done on software by advisors, says Peter Giza, the Nashua, N.H.-based head of business development for WealthSite.
He says that it makes sense for custodians to go in this direction as a way to simplify the process of complying with ever-stiffer regulations. Right now, data get reconciled in a hodgepodge of ways — including reliance on a data-cleaning person inside RIAs. See: Addepar slashes prices, opens up its architecture and shows RIA custodians some love as it confronts market realities.
But Ed O’Brien, head of platform technology for Fidelity Institutional Wealth Services, doesn’t necessarily see big advancements coming out of Schwab’s Project PM.
“We believe that the need to eliminate reconciliation for the advisor has been solved,” he says. “Many reporting systems — including Fidelity’s own platform — take data directly from custodian data sources, eliminating the need for reconciliation. Or, in other cases, software-as-service platforms have invested in automating reconciliation processes, so that advisors are not required to perform that task.”
Schwab spokesman Greg Gable says: “That is incorrect.” in response to O’Brien’s assertion that reconciliation issues have been solved for advisors. Gable declined to elaborate on just exactly how it is not right.
Joseph Giannone, a spokesman at TD Ameritrade Institutional, says that his firm declined to comment specifically on a competitor’s acction. But he pointed out that RIAs at TD have benefitted from the firm’s integrated set of data and increased efficiency through Veo Open Access.
“Advisors’ custodial data is integrated across their technology suite and seamlessly fed to all the systems they work with, including such core applications as customer relationship management, financial planning and portfolio management,” Giannone says.
Schwab as competitor
Hathi’s statement suggests that there could be benefits to Schwab’s new vision. “[We are] enabling an advisor to easily uncover insights, and through one-step publishing, let the advisor share information with clients directly anytime, anywhere,” her statement says.
Eric Clarke, president of Orion Advisor Services LLC, doesn’t agree with Tsung’s inference that Schwab’s power play will threaten the value of software data reconciliation as provided by third parties. There are trust as well as technology issues that come into play.
“Ironically, we’ve had to compete with Schwab in this area for quite some time, so its really not anything new,” he writes in an e-mail. “If Schwab does decide to go multi-custodial with PM2, advisors will have to decide if they trust Schwab having their non-Schwab client data.”
He continues: “Keep in mind, Schwab is the firm that directly competes with advisors with Windhaven, sets up franchises in the same communities advisors reside, etc. It doesn’t seem likely that advisors would trust a firm that competes with them in the advice business [to handle] their non-Schwab client data.” See: Schwab adds $2 billion of assets from Windhaven, with RIA help, and another $2 billion of assets from 41 new RIAs.
Third-party providers do have a place in Schwab’s vision, Gable says in the email. He declined to elaborate about how.
“We believe third-party providers will continue to have ways to add value to the advisors’ experience.”
No reconciliation needed
O’Brien adds that there is more nuance to the data reconciliation issue.
“The portfolio reporting within Fidelity’s advisor platform does not require any reconciliation. We have moved beyond static, text-oriented reporting to much more interactive visualizations that help advisors interpret information about their clients’ portfolios and their business operations,” he says.
“Furthermore, Fidelity works with many third-party reporting platforms; as part of our open-platform approach, RIAs take our data and information directly, and require no reconciliation process for the advisor.” See: Fidelity is set to add Envestnet, Redtail, Morningstar, AppCrown and Salesforce to WealthCentral.
Demand for customization
Clarke agrees that there are more considerations in an ecosystem environment of differentiated providers that RIAs use.
“The vast majority of the firms we work with — 90%-plus — are multicustodial, requiring us to bring in and reconcile data from multiple custodians. We’ve got nearly 14 years of experience reconciling data for advisors on our cloud-based platform, which gives us a bit of experience under our belt. Advisors demand customization, scale and integration capabilities that go way beyond automated reconciliation. We believe third-party providers will continue to have ways to add value to the advisors’ experience. See: Schwab moves to keep 3,500 desktop-bound RIAs from walking onto somebody else’s cloud.
Giza says all this pondering Project PM may be moot — at least for the foreseeable future — given the technological gridlock Schwab and other RIA custodians exhibit in trying to roll out new programs. See: What Neesha Hathi has to say about Schwab’s oh-so-slow-but-steady technology initiative. Schwab’s Project C is still a work in progress four years later. See: Schwab’s Project C now has two tiers and three new names.
“Advisors just don’t believe anymore. They say: 'Show me when you have it.’”
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