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Fidelity Institutional and Black Diamond tie the knot through WealthCentral

The companies promise 'bi-directional' integration

Thursday, September 23, 2010 – 12:44 PM by Brooke Southall
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Michael Lee: If our systems are playing well with the custodian, we don’t want to fix what’s not broken.

Brooke’s Note: When I covered technology companies from Baltimore in the late 1990’s, I kept a close eye on a fast-mover called Ciena. It made dense-wave division multiplexing equipment that allowed rivers of information to travel cross country in an optical networking blink of the eye. The problem was that it often needed to be converted back to analog signals before travelling to its final destination. This largely negated speed gain and efficiency. I have seen some of the same kind of action in the integration efforts of software makers. There’s a single sign on but then you end up back in one of the silos of the system. What’s the point? I get the sense that this deal between Black Diamond — born on the web — and Fidelity may finally bring some of the optical networking minus the analog signals that the industry has been looking for.

Fidelity Institutional Wealth Services has added Black Diamond Performance Reporting’s Blue Sky software to its WealthCentral platform.

The Boston-based custodian is adding the second choice of a portfolio management system to its new platform in an effort to widen its marketing reach, encourage migration from AdvisorChannel, show its sincerity in creating a bundled solution that offers variety and choice and take its technology edge to a new level.

It also solidifies its position with existing clients who choose to use Black Diamond and Fidelity.

Playing well

“If our systems are playing well with the custodian, we don’t want to fix what’s not broken,” says Mike Lee, chief operating officer of Los Angeles-based Lourd Capital Management, which already uses Black Diamond for portfolio accounting and Fidelity as its primary custodian for the $500 million of assets it manages. “We are trying to stay with one custodian. It helps us to be streamlined and efficient.”

Since Fidelity introduced WealthCentral in 2008, Advent Software has been the sole partner for portfolio management and Fidelity executives are excited to introduce the second – and differentiated — choice.

“Black Diamond is growing steadily. We still have a fantastic partnership with Advent. They invented the space but it’s not a monopoly. There are other companies in the marketplace,” says Mike Durbin, president of Fidelity Institutional Wealth Services.

Indeed, Advent Software of San Francisco has established a big relationship with Fidelity and its clients, according to Anthony Sperling, Advent’s general manager for the Investment Management Group.

“Hundreds of clients count on Advent’s industry-leading accounting and reporting engine to run their operations through Fidelity’s WealthCentral, and we’ve partnered with Fidelity since the platform’s introduction to ensure its seamless integration.”

Advent’s comments were added at 11:10 EST today. Advent’s executives just wrapped up their national conference in Las Vegas yesterday and asked for more time. See: Advent founder urges advisors to steer away from 'disruptive’ course of switching systems.

Deal city

The deal, announced today, is another sign of Black Diamond’s rise in the market. Black Diamond already integrates with Pershing’s Netx360 and it has between 20 and 30 advisors using it. Black Diamond nabs Pershing account.

It is also used as the performance reporting component of HighTower Advisors’ platform, the aggregator of big wirehouse teams. It also signed a deal with Shareholders Service Group, a custodian generally aimed at smaller RIAs; through the deal, they can get the software at a reduced rate. See: Several hundred small RIAs gain access to Black Diamond software at reduced rates.

By joining with Black Diamond, Fidelity may be able to accomplish a series of objectives both for its custody efforts and accelerating adoption of Wealth Central, which has about 600 users of its 3,300 clients that manage a combined $410 billion assets as of June 30.

There is a now a wait list for conversions and there will be at least 1,200 WealthCentral users by 2011, Durbin said in an earlier interview. The platform costs about $20,000 for the typical RIA firm with 300 accounts. See: Fidelity wins converts to WealthCentral, but most of its advisors have yet to make the switch.

Fidelity also can leverage the success of Black Diamond’s salesforce in pursuing big RIAs. Black Diamond has been growing fast and currently has 215 firms with a combined $45 billion of assets managed using the software. It had about 165 firms last year at this time and 70 in the fall of 2008.

Second sales force

“We have aligned interests. We’re effectively getting a second sales force,” Durbin says.

The collaboration also helps the 80 Black Diamond clients who are also Fidelity custody customers. Black Diamond will be able to literally switch off the old service and switch on the new one – but with better integration. The major benefits of integration are expected to start trickling through toward the end of 2010 and then much more in 2011.

But ultimately the partnership between Fidelity and Black Diamond will succeed or fail based on what it can technologically deliver to advisors. Advent is still the industry standard and has about 3,300 using its desktop Axys version of its software and about 600 using its Advent Portfolio Exchange product. About 300 firms are using APX on a hosted basis and some of them are also part of the WealthCentral platform.

Black Diamond is sold only as an outsourced software-as-a-service product and it has four advantages over its big San Francisco-based competitor in its integration with Fidelity, says David Welling, chief solutions officer of Black Diamond.

With Black Diamond advisors get ‘contextual links’, which means, for instance, that when clients accounts are arranged by households on the Black Diamond system that it will show up that way on WealthCentral, too.

The melding of the systems is important for scaling a practice, Lee says. “If we can sign on to one, it makes it easier for training and ramping up,” he says.

Secondly, information in Black Diamond will flow into the other applications integrated with WealthCentral, including the EISI planning software, Oracle CRM software and Northfield Information Services for rebalancing. This will mean that advisors don’t need to re-key information for each application.

“This allows rebalancing to happen” including in non-Fidelity accounts, says Ed O’Brien, Fidelity Institutional’s senior vice president of technology.

Alternative investments

Thirdly, there will be holdings and performance reporting on alternative investments. This is a category of investments that still represents a small portion of RIA holdings but it’s one that is both on the rise and highly valued. When Schwab Advisor Services floated the idea that it would [post-Madoff and CDO crisis] discontinue holding the $5 billion of alternative investments out of $600 billion on its platform, it caused a minor insurrection among top clients [that has since been smoothed over].

“For more sophisticated clients, it makes them happy to see all their positions [including alternatives] in the system,” Lee says.

And, fourth, there will be automatic synching of cost basis information between Black Diamond and WealthCentral. With new laws concerning cost basis, advisors are looking for every advantage they can get to manage cost basis accurately. See: Fidelity delivers a white paper and a warning to RIAs regarding new cost-basis rules.

Durbin says Black Diamond also gives RIAs another choice when it comes to the style and look of reports.

“A choice in basic reporting packages is good for advisors,” Advent’s Sperling says. “But for those firms that demand uncompromising accuracy and complete transaction, cost basis and performance measurement information, Advent continues to be the best choice, since we’ve been supporting the industry and its regulatory requirements for more than 27 years and delivering our solutions through local software installs through the SaaS model with full back office outsourcing. We look forward to our continued partnership with Fidelity as we deepen both our technical and service integration with them.”

Reed Colley, founder of Black Diamond credits his company’s recent introduction of Blue Sky, its revamp of its portfolio accounting system, for helping his company to take integration with Fidelity to a higher level. “We built it specifically to be extendible,” he says.

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