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Schwab escalates the RIA custody arms race by releasing more plug-in business practices called workflows

TD Ameritrade, Schwab and others have designs on inserting neural pathways into advisor practices but one expert questions the workability of automated workflows

Author Brooke Southall June 22, 2012 at 3:36 PM
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Chris Cordaro: We have 25 different workflows in our system....If we waited for Schwab to develop best business practices for us we'd be five years behind.


Peter Giza

Peter Giza

June 22, 2012 — 5:35 AM


I couldn’t agree more with Bill Winterberg’s statement “Complicated workflows with multiple
conditions can quickly become unmanageable.” And for the life of me I don’t understand how CRM became the center of the universe with regard to work flow management.

I know that Junxure’s Greg Friedman will battle me to the death on this, but a Client Relationship Manager is just that, a respository of client data made to make collection of private client data easier.

CRMs were never designed to automate and control work flows which are made up of tasks both synchronous and asynchronous in nature. Management of swim lanes, statefulness, bi-directional data flows, inter-process communication, and so forth were never the target of the CRM.

There are task management engines specifically designed to handle these problems and they are very good at doing them. Companes such as TaskServer for which RedBlack’s chief architect Roel Vlemmings holds a patent, have the infrastructure and intelligence needed to control complex workflows.

Other work and data flow automation products such as Dell’s Boomi and Jitterbit are well-suited to glue it all together.

But the industry has decided that CRM is the center of the proverbial universe for now. I wonder what Galileo would say if he were here? Then again I wonder if we would burn him at the stake for pointing out the obvious.




June 25, 2012 — 2:19 AM

I would tend to agree with Pete. CRM platforms are rarely a great solution for task, workflow and/or global project management platforms.

Moreover, workflows are rarely 'one-size-fits-all’. Why have 500 downladable workflows? Is each client relationship the same? Does every client drop what they’re doing and answer emails, sign forms, answer calls; from an automated service?!?

Communication and understanding of workflow CONTEXT is key. Is a custodian going to reach out to an advisor when a workflow task has gone stale? Not likely. Advisors need attentive and dynamic staff that understand the contexts.

Don’t get me wrong. Workflows are essential…..for back office and associate/assistant persons that understand the holistic needs of clients and advisors. Where can advisors find such scalable resources? Dynamic Wealth Advisors.

Stephen Winks

Stephen Winks

June 26, 2012 — 1:51 PM

The spagetti factory observation suggests that high level expert investment counsel is unmanageable, which is not the case, it just requires a comprehensive understanding of advisory services. Thus, to those that have a high level of understanding of a small aspect of advisory services—advisory services may seem unmanageable, which perpetuates the myth of impossible complexity—placing massive on professional management. Acute knowledge in narrow areas is important for an optimal solution, the problem is there is no context from which an optimal solution can be achieved.

So far, there is no will or laditude to execute on the part of professional management within the industry to advance the necessary innovation to support fiduciary standing so advice is safe, scalable, easy to execute and manage as a high margin business. This is partly beause it places operations staff in an entrapreneurial position in which they feel awkward, in part because it places top management in a position where theymust exercise expert judgement in areas in which they are not familiar and in part stresses the culture of a brokerage business model where brokers are neither accountable or responsible for their recommendations. We all know the right thing to do. Leadership is in short supply, yet a rennaisaance in advisory services awaits which outdates everything that has come before it.

Harvard’s Clayton Christensen observes, the biggest mistake established industries make when faced with industry redefining innovation is to look at innovation in the context of its existing business model, when a new business model is in order. Has the industry’s existing business model become a high cost low value added option which is rapidilt becomming obsolete ? In any case the consumer and the advisor wins, as in a free market there has never been a case where the best interest of the consumer has not prevailed. The trust and confidence of the investing public is in jeapardy—where is principled leadership ?


Peter Giza

Peter Giza

June 26, 2012 — 4:38 PM


I don’t think we are inferring what you state, and I quote:

“here is no will or laditude to execute on the part of professional management within the industry to advance the necessary innovation to support fiduciary standing so advice is safe, scalable, easy to execute and manage as a high margin business”

Note: In this entire context I use the term “firm” to represent any business, not just advisors.

However, having been intimately involved with workflow automation ranging from scheduling fluorescent light bulb change-outs in buildings measured in acreage; cell phone build and configure; to financial services pitch book creation and management; I can tell you that work flows are 75% repetition and 25% ugly, nasty, spaghetti tasks that tend to be highly fixed to the process and/or the firm.

If work flow automation were so simple to put into a neat little box and then copied from one firm to another, the work flow management business wouldn’t have so many consultants pulling down six figure plus salaries.

Additionally a firms’ secret sauce may be tied to its processes and procedures. These represent very unique ways of thinking and scaling that many other firms may not have thought about. Speaking in that context, the originator of those process flows is not likely to share them if they represent significant competitive advantage.

This is not conjecture. I have been told to my face by advisors that they do not want to see normalization. They like to see the technical complexity because they get it and if their competition can’t figure it out – tough. The business case for discontinuity has been made in that argument. I believe that normalized or not, if you do not know how to use tech or build a business, it can be cookie-cutter and you still will not be able to leverage it. However, I digress, back to work flows automation.

Let’s just pick on trading and rebalancing since its so near and dear to my RedBlack heart. One of the reasons advisors like RedBlack has all to do with work flow management flexibility AND on demand training. I mention training because it is so instrumental in the work flow discovery process.

One might imagine that trading is a simple process of portfolio monitoring, action identification, rebalancing, trading and trade reconciliation – It just isn’t that simple. That is one of the reasons that Excel no longer meets the needs in this area. Loss of opportunity, the inability to act adroitly, lack of or poor compliance, etc., are all reasons that advisors are looking to third party applications like RedBlack to help fine tune their practices.

Let’s take a simple example – High Plains Drifter:

1) Identify accounts / households out of drift tolerance
2) Identify which positions need immediate attention
3) Cull out accounts / households not needing immediate attention
4) Determine needed position action, rebalance, swap, close, etc.
5) Execute action
6) Review resulting trades
7) Adjust trades as necessary; adds/changes/deletes
8) Jump to step 5 or step 6 as necessary
9) Submit for final review
10) Submit to custodian

The ten basic steps above may become 20 or 30 steps for other firms depending on the level of documentation, auditing and review processes and reviewers required. The devil is in the detail. The above example is by no means comprehensive and is a thumbnail of an actual process.

It goes without saying that every firm has their own way of doing things. And while 75% of this may be normalized into standard work flows, that last 25% is a killer. Most firms (not just picking on advisors) do not really know what their work flows look like until they really sit down and walk through them lock-step with someone and this is where the training-discovery phase comes into play so prominently.

You could build some basic automated work flows based on the above, however how much of it can you truly automate? Things such as audit archiving and messaging can be automated, but human intervention is needed at the review stages in all cases. Even on a basic position swap, I know of no firm that will just generate the swap and then send the trades to the custodian without doing its’ due-diligence to insure all trades are a expected. In fact RedBlack will warn you prolifically to do so.

While I do agree with your points on fiduciary responsibility, I don’t think its’ all negative and I do believe there are many software vendors out there like RedBlack that are really trying to make things better for the industry at large.

What we need now is for the industry, starting with the advisors themselves, to jump on the bandwagon and help the vendors by insisting on collaboration and standards. Don’t you agree?



Stephen Winks

Stephen Winks

June 26, 2012 — 7:13 PM


There are tens of areas that require the granulatity of a solution you cite and then some when it comes to an integrated solution. Certainly managing complexity and ease of use are near the top of the consideration criteria but topping them are effectiveness and safety which assure reliability. First firms (broker/dealers and custodians, more so than RIAs other than the very largest) need to jump of the bandwagon to assure the advice they support their advisor in executing is safe, scalable, easy to execute and manage as a high margin business. Second is how good is the solution.

The industry hasn’t yet decided whether it wants to support fiduciary standing even with a Congressional mandate to do so (illustrates the power of the industry at the expense of the consumer). Until the industry supports fiduciary standing and the trust and confidence of the investing public, everything else is secondary. There is no need for an excellant trading system in the consumer’s best interest, if the consumer’s best interest doesn’t matter to the industry.

Thus, in my humble opinion, we either wait for the best interest of the investing public to be important to the industry or for a critical mass of advisors to insist on the best interest of the investing public prevail.

Nothing is going to happen one advisor at a time, as large scale innovation is required which makes expert personalized advice safe, scalable, easy to execute and manage as a high margin business at less cost than a packaged product.

As much as individual advisors benefit from innovation, it may require too much for the advisor to managea broad range of innovation unless incorporated in a simplifying authenticated expert overarching prudent process.

Otherwise, you require the advisor to add sucessive layers of complexity that may stress a small enterprise, which just wants to benefit from the use innovation rather than having to manage it all. This is where broker/dealers used to be helpful, when innovation was not a choice between serving the consumer’s best intererst rather than the broker/dealer’s.

Through process we greatly simplify the industry, increase margins, exponentially increase the advisors value proposition and regain the trust and confidence of the investing public.


Peter Giza

Peter Giza

June 26, 2012 — 8:02 PM


I couldn’t agree more with the spirit behind your statement, and I quote:

“a critical mass of advisors to insist on the best interest of the investing public prevail”

and that is precisely why I drafted the proposal I referenced in our last discussion and offered you the opportunity to comment and contribute to.

The overriding spirit is Advisor Involvement in their own destiny. As you state either we wait on the industry or we push the industry. Whether that is for fiduciary standards that protect the investing public or provide better technology, compliance, etc., ad nausem., it is incumbent upon those who are dissatisfied to step up to the plate and start hitting the ball in a direction that makes sense for all not just a privileged few.

Neither you, or I, or individual companies like RedBlack can make things change. It will require something along the scale of an Internet Open Letter to the industry with wide-scale advisor buy-in and involvement to get things off and running. Even then, if working groups with charters and action items are not formed then the best of intents will die with such a letter.



Stephen Winks

Stephen Winks

June 26, 2012 — 8:39 PM


A decade ago I put together a group of 50 top advisors, technologist and technical experts to define advice based on statute, case law and regulatory opinion letters, establishing best practices and the enabling resources (process, technology, work flow management, conflict management) necessary to support expert fiduciary standing. I incorrectly thought it was the unknown that precluded the industry from supporting advisory services. It wasn’t, it was the lack of the accountability and responsibility of brokers for their recommendations. It didn’t matter what was in the client’s best interests.

A decade later, many of those very top brokers are now advisors and fiduciary standing is now a regulatory imperative.

I am in the process to see if we can get hundreds of billions in interest to support the development of large scale institutionalized support for fiduciary standing that will make advice safe scalable, easy to execute and manage as a high margin business at the advisor level.

Feed back has been most enthusiastic with just a few of the well know advisors I have called. Over the comming month or two, I believe the reconstitution of the old standards group can make it in the industry’s enlightened best interest to make advice safe, scalable, easy to execute and manage as a high margin business which will restore the trust and confidence of the investing public, facilitating an unprecedented level of investment and administrative counsel at a lower cost than a packaged product. All dedicated to the public domain, to assure perpetual innovation in the clints best interest.

Either the brokerage industry’s inertia in supporting fiduciary standing will be swayed by its enlightened best interest or custodians will be blessed with a faster better and cheaper mechanism to support advisory services.

No coersion, just the best interest of the advisor and the investing public prevailing in a free market.


Peter Giza

Peter Giza

June 26, 2012 — 8:59 PM


I hope your efforts prevail. I will be looking for an announcement with great interest.



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