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Schwab unveils a plan to create a grand ecosystem of top technology vendors to RIAs

Executives of the San Francisco RIA custodian believe they can take integration further than Fidelity's WealthCentral

Tuesday, May 11, 2010 – 6:08 AM by Brooke Southall
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Neesha Hathi: No one in the industry is doing anything like this.

Schwab Advisor Services laid out the company’s master technology plan yesterday in a web conference that shows it plans to put tremendous resources toward integrating different software used by advisors into one technology platform.

Bernie Clark, who heads Schwab’s RIA custody business and Neesha Hathi, who heads RIA technology, presented Project C to 350 advisors attending a webcast at 1 p.m. EST. They made the case for how the new technology plan one-ups the competition by leveraging Schwab’s size and reach among advisors.

Schwab is developing short lists of about three vendors for each of four categories of applications most vital to RIAs: portfolio accounting, financial planning, customer relationship management and trading/rebalancing. See: Schwab chooses some giant software partners, apparently with big RIAs in mind.

Then it will pour its efforts into making sure that these vendors become intensively integrated into Schwab’s own technology — Schwab Advisor Center. Rolled out last September, Schwab Advisor Center is the revamped version of the old Schwab Institutional web site.

Mark Balasa, principal of Balasa Dinverno & Foltz LLC listened to the webcast and says that he is pleased by what he hears. His Chicago-based firm manages about $1.6 billion of assets

“My initial reaction is positive,” he says. “Someone like Schwab can coalesce around a standard. [The RIA business] is fragmented and from a software provider’s standpoint — cheap . Without impetus, the development of a standard hasn’t happened.”

Multi-year undertaking

Schwab plans to begin rolling out its bundled solution by year’s end but it warns that it sees Project C as a multi-year undertaking.

RIAs using Advisor Center will be able to choose among the vendor options in each category — and depending on how successful Project C is, will see a nearly seamless integration between Advisor Center and the vendors’ software, and even between the vendors’ software packages themselves.

Schwab assures advisors that they can still use other software options though they may not have the same seamless connectivity.

For software companies, being chosen as one of the top three or four vendors clearly will have a big impact. Schwab has 6,600 advisors and already 53% of them use Advisor Center. As of May, Schwab will make it the default choice for advisors and by the end of October virtually all advisors will have switched over from the old Schwab Institutional site.

Nominate your tech vendor

Schwab plans to reveal which vendors it will integrate into Project C by the time of its IMPACT 2010 conference that runs Oct. 26-29. Clark says advisors can largely surmise which vendors will make the list because it will mostly be the top three providers in each software category. But Schwab is also sending an e-mail to all of its advisors asking them to nominate the technology providers they believe are most important to integrate at the outset. Schwab will — eventually — integrate four, five or more in each category of software, Clark adds.

Fidelity Investments has already created a technology offering called WealthCentral that in many ways resembles what Schwab is describing. It integrates Siebel CRM software, EISI planning software, Advent Software portfolio accounting and Northfield rebalancing. WealthCentral already has 500 RIA firms that have upgraded to it from AdvisorChannel and 33% of those firms use its integrated applications, according to Ed O’Brien, senior vice president and head of technology for Fidelity Institutional Wealth Services of Boston. See: Fidelity wins converts to WealthCentral, but most of its advisors have yet to make the switch

Validating WealthCentral

“To me, Schwab is coming to the table in validating WealthCentral and the conclusion [that software integration is paramount] that we came to three years ago,” he says.

Yet O’Brien says that his company has advantages. “There are a lot of opportunities for us to add on functions and vendors in the next three years,” he says. “Once you get the model built, it becomes much easier to replicate.”

But Hathi says her company has plans that surpass the efforts of competitors like Fidelity in several areas.

“We think what we’re doing is pretty different,” she says. “No one in the industry is doing anything like this.”

Here are the three key differences that she outlines: 1.) Schwab is building all of its integration around the CRM application 2.) Schwab is incorporating a longer list of vendors. “Advisors have said: [To use a competitor’s bundle of software] I would have had to do a conversion,” she says. “We bring the conversion to them.” This orientation allows Schwab to bring the advantages of integration to more financial advisors. 3.) Schwab will leverage its extensive consulting services to tailor the tech solution to business needs. “We have 6,600 advisors, so you can’t say, here’s the blueprint,” she says.

Schwab, however, declined to respond to queries about how all of these services will be priced. A Fidelity spokesman said WealthCentral prices are posted on the website but I couldn’t find them. [If I find them — or they’re pointed out — I’ll put the link here.]

One advisor who listened in on today’s webcast believes that Schwab’s ambitious plan could take RIA technology to new heights.

Milestone for the industry

“I think that’s a big milestone for the industry if they can build it,” says Anthony Schembri, partner with Clarfeld Financial Advisors Inc., which manages $3 billion of assets from Tarrytown, N.Y.

The technical challenges ahead of Schwab are large. For instance, it will have to cope with things as basic as aligning incompatible fields. Different software providers might define an address or household group differently by asking for differing sets of information.

It is also designing a system that allows data input into any software package to flow into the other, Hathi says.

“It’s connecting the technologies and the workflow,” Hathi says. “Just connecting the two systems together isn’t all that challenging.”

Schwab also must integrate not only Schwab’s own custodial platform but those of other custodians. Schembri said that was a key for him, because his firm keeps assets at TD Ameritrade and other custodians in addition to Schwab.

The new platform is as multi-custodian as possible, but it’s possible some information might not flow through as quickly because of the practices of the other vendor, Hathi says.

Disparate technologies

Though advisors are excited about Schwab undertaking the task of making a world of disparate technologies sing in harmony, there are also concerns.

With so much favor being paid to a handful of the top vendors in each application, they wonder whether — until Schwab forms its most-favored list — they should wait before going ahead and choosing new technology.

“It’ll cause a lot of firms to think hard before adding other systems,” Schembri says. “What does an advisor do?”

“Yes, the fact that they first announced the initiative but are waiting to name the integration partners may cause a few disruptions,” says Joel Bruckenstein, publisher of Virtual Office News.

Accurately guess

“Having said that, if they are going to poll their advisors, as they say they are, we can probably accurately guess who some of the winners will be.”

Though Schwab is just getting going with Project C in some respects, Clark chose to announce the program now because the company has been working on the plan for a “long time” and it has made headway in three key areas. First, it has worked its way through “many, many” conversations with third-party vendors for a blueprint of how the companies can interact. Second, Clark has secured the funding internally. Thirdly, Schwab has solicited the necessary feedback from advisors to know largely what they want.

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Bill Winterberg

Bill Winterberg

May 11, 2010 — 5:06 PM

Subscribing to a technology platform offered by a custodian is a double-edged sword. One one hand, advisors benefit from integrated software that minimizes redundant data entry.

But on the other, advisors may become captive to the custodian, leading to potential issues with the way advisors manage their business.

Remember when it took Schwab over a year to address support of alternative investments on its platform? See <a href="http://www.riabiz.com/a/851003">After a wait, Schwab has a program for alternative assets</a> at RIABiz.

Though I suppose there isn’t any reason why advisors couldn’t purchase the “Project C approved” software programs independently to remove the dependence on Schwab. It just may be more expensive to buy them outside of the Project C program.

Bill @ <a href="http://fppad.com">FPPad.com</a>

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