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Schwab chooses some giant software partners, apparently with big RIAs in mind

Experts say it chose well but advisors may have to wait for IMPACT 2011 for a demo of integration

Thursday, October 28, 2010 – 4:52 AM by Brooke Southall and Elizabeth MacBride and Elizabeth MacBride
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Neesha Hathi: We know there are going to be disappointed clients and vendors.

In a widely anticipated announcement that opened a small window into its priorit Schwab Advisor Services used the IMPACT 2010 stage to anoint two vendors for Schwab Intelligent Integration that surprised some people and a third that many expected.

The RIA custodian picked Microsoft CRM and SalesForce – two brand names not readily associated with financial advisors — in addition to Junxure, a widely used CRM software that is already tied closely to Schwab. Executives said the integrated platform would likely be launched by this time next year.

“It was somewhat surprising … because industry surveys don’t indicate that Microsoft and Salesforce are that high up on people’s list,” says Joel Bruckenstein, a technology consultant who produces Technology Tools for Today (T3).

The choice of the two big providers for SII [formerly Project C] may reflect the emphasis that Schwab is placing on satisfying the biggest, fastest-growing RIAs who need software built foremost for scaleability.

“Microsoft CRM and Salesforce are almost platforms that you can build on themselves,” Bruckenstein says.

Vendors passed over

Junxure aside, Schwab’s choices appear to be bad news for CRM companies like Redtail and ProTracker – and these companies’ names were presented by Clark on IMPACT’s stage as candidates passed over for now. Executives from these firms did not return phone calls.

Schwab has such market power, some smaller companies will likely have a much more difficult selling job because they are not on the “to-be-integrated list” from the start. Hathi acknowledged that many vendors have been lobbying Schwab to be on the integrated platform.

“We know there are going to be disappointed clients and vendors,” she said.

The choice of Microsoft could also tie Schwab indirectly to other smaller vendors like Tamarac.

“Our CRM actually was selected, indirectly,” says Matt Stroh, vice president of marketing for Tamarac. “Microsoft doesn’t sell directly; they sell through partners like Tamarac. In fact, in Microsoft’s CRM presentation [at IMPACT] today, they called us out as one of the providers. So we couldn’t be more pleased, actually.” See: Tamarac claims what was unthinkable two years ago — that it is on the same playing field as iRebal for rebalancing software

Schwab is moving at a slower pace than some of its competitors in forming an integrated platform. That may reflect the fact that, as the market leader – with $600 billion of assets in custody — Schwab faces a different set of pressures than some of its smaller, nimbler competitors. [Though competitors may not agree; see below]

Can’t afford a misstep

Schwab’s average advisor has $100 million in AUM – and it has more than 6,600 advisors whose average account size of $1 million AUM means that Schwab can’t afford a misstep with an integration that isn’t quite – well, integrated – to the standards of its service.

“There will be a turnkey solution,” Clark said in an interview. “That’s what we are committed to.” See: Schwab’s Project C now has two tiers and three new names

“We are working diligently,” he added.

Competitors like Fidelity Investments and Pershing point out that their integrated systems are well developed.

“WealthCentral is not a vision of what could be, it is reality — already being used by more than 700 RIA firms. We will continue to innovate, even as the competition begins to follow our lead,” says Steve Austin, spokesman for Fidelity Investments. WealthCentral integrates technology from Oracle, Advent, Black Diamond, Northfield and EISI. Fidelity wins converts to WealthCentral, but most of its advisors have yet to make the switch

Pershing’s new technology platform, NetX360, is now rolled out to 96% of the 110,000 advisors using it. NetX360 integrates Redtail Technology, Microsoft and Salesforce for CRM. It is also wired with Black Diamond and Albridge for portfolio accounting and MoneyGuide Pro and EISI’s Naviplan for financial planning. [Nevin, Heather and I will be sitting down for a demo of the evolved NetX360 next week.]

“It’s a very tight integration; we have integrated on a data level,” says Lucille Mayer, head of technology products and services and managing director, Pershing LLC.

How Schwab picked

In masterminding its integration, Schwab wanted an array of software models and price points, Hathi said. In addition to feedback from advisors (more than 1,000 sent in recommendations during the process of picking the three winners), the company considered such things as the interface, whether the application was cloud or desktop-hosted and how robust its options were. Schwab also was going for the most ease for the greatest number of clients in picking three big vendors, Hathi said.

“More than half of our advisor clients today using CRM today are using Salesforce, Microsoft or Junxure,” said Hathi.

Junxure, made by CRM Software, was the least surprising of the choices; it is closely associated with Schwab Advisors Services. At one point, Schwab had a marketing and redistribution agreement for Junxure but no longer does. Between 800 and 900 of the 1,300 advisors that use Junxure custody with Schwab, Hathi said.

In addition to that, it’s a desktop-based application that is very specifically designed for the advisor market. It’s also the most expensive of the three options, costing $1,850 a year for the first three users and $350 for additional ones. The cost drops in the second year, and Schwab advisors already get a 15% discount.

Microsoft as new kid on the CRM block

Microsoft CRM is a relatively new entrant in the market, but over the past five years, it has caught on, she said. A few hundred Schwab advisors already use the software, which can be either desktop-based or cloud-based. It costs $44 a month per user, and tends to be the most popular with clients who have very high net-worth clients or who have family offices. One of its other advantages is the familiar Microsoft interface, she said.

In the past year, Edelman Financial, which manages about $5 billion of assets from Fairfax, Va., spent millions of dollars to make Microsoft its CRM vendor. See: Edelman expansion slows; back office 'overwhelmed’

Salesforce.com costs $125 per month per user; Schwab has negotiated a 20% discount that goes into effect today. Salesforce will be the first CRM that is sold in a turnkey, one-view configuration – so a packaged version of Schwab Advisor Services that includes Salesforce may well be appealing to new and breakaway advisors.

One big RIA using Salesforce – and which uses Schwab as one of its custodians – is Newport Beach, Calif.-based United Capital, which has $12 billion of assets under advisement from 26 offices nationally.

Brandon Gage, chief technology officer for United Capital, says that Schwab may have observed the same attributes in the San Francisco-based CRM provider that his company did.

Salesforce’s pocket army

“We looked at Redtail and Junxure. What drew us toward Salesforce was that their scalability was just built in; like with Apple, hundreds of developers embrace the product and that’s where their scale comes from. With Schwab raising the bar, the Salesforce partners will put that much more into it for advisors.”

The first vendor to be fully integrated will be Salesforce, Hathi said. The other vendors will also be integrated, but through a gateway system, whereby the data of Schwab Advisor Services is integrated, but advisors will still enter the CRM program separately.

Schwab is still negotiating the terms of the way the support will work for clients who are using the gateway version; that’s one of the hold-ups on coming to final agreements with Microsoft and Junxure. Hathi said she did not anticipate a problem in coming to those agreements.

Editor’s note: A change was made in this story to reflect that Schwab never owned Junxure, a software product that has been added to its integrated platform.

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Technology Tools for Today
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