RIABiz

News, Vision & Voice for the Advisory Community

RIABiz

Schwab shifts its strategy on its massive Intelligent Integration

Schwab evolves to a platform-of-platforms strategy for technology rather than hand-picking best-of-breed applications

Thursday, June 7, 2012 – 4:56 AM by Lisa Shidler
Admin:
no description available
Neesha Hathi: That's a bit of an evolution for us.

Related Moves

Walt Bettinger sheds 'president' title and Bernie Clark gets new boss as Schwab appoints Rick Wurster as president and No. 2 in charge

The Schwab CEO gets 2016 'Windhaven' hire to share burden of governance from enormity of $8-trillion post-TDA, post-USAA, post-Motif growth.

December 20, 2021 – 11:59 PM

Charles Schwab prunes another 200 or so staff but assures Wall Street analysts the Jenga piece of TD Ameritrade RIA services is still part of the puzzle post-merger

The Westlake, Tex., broker deemed John Tovar 'best talent,' hence a keeper, and ex-TD staffers affirm Schwab's good instincts.

February 11, 2021 – 12:08 AM

Envestnet nabs Dani Fava to cross-pollinate semi-autonomous units and reap 'financial wellness' as the end product

The Chicago outsourcer has a massive, partially disconnected arsenal of products that CEO Bill Crager is rationalizing into 'wellness' with yet another new unit.

July 23, 2020 – 1:42 AM

361 Capital has eight-year asset rise from $100 million to $1.7 billion then makes two people moves after net inflows slow to trickle

The liquid alts provider is a beneficiary of referrals from Lovell Minnick, which owns a stake, but will need to apply 'elbow grease' to marketing to keep pace with redemptions and the law of large numbers

November 27, 2018 – 6:10 PM


Mentioned in this article:

AppCrown, LLC
Outsourcer, CRM Software, Tech: Other
Top Executive: Ted Tsung

Envestnet | Tamarac
Portfolio Management System, CRM Software, Trading/Rebalancing
Top Executive: Stuart DePina




Elmer Rich III

Elmer Rich III

June 7, 2012 — 5:20 PM

Very ambitious. Realistic? Is there a precedent or model of such an widespread tech integration being done successfully? Even from other industries?

Anecdotally, we are seeing tech problems multiply as complexity increases — not the other way around. Would seem prudent to have some hard data and evidence before proceeding. That could take years of hard expensive research. That will not happen.

There is a lot of hope and hype around tech. For example, the social media “promise” of saving you time if you spend (a lot) more time on social media!? Kind of silly.

Stephen Winks

Stephen Winks

June 7, 2012 — 7:34 PM

Schwab’s challenge is incremental innovation adds complexity, the simplicity desired by all with out denigration of expert fiduciary standing can only be achieved with a comprehensive solution.

Yet as a custodian Schwab can not be comprehensive in its approach to enabling resources (authenticated prudent process, advanced technology, work flow managemenr, conflict management, expert advisory services support) as in doing so its support becomers prescriptive for expert fiduciary standing thus triggering fiduciary liability.

Thus, it will not be a custodian that supports advisory services, nor will it be a brokerage firm. Large scale institutionalized support for fiduciary standing will come from an RIA with none of the conflicts of a brokerage firm.

Will it be Focus or HighTower or will it be a third technology party vendor like Adhesion, no one knows. What we do know is what is required and how to make expert authenticated advice safe, scalable, easy to execute and manage as a high margin business at the advisor level. It is a daunting task as technologist do not understand advice and advisors do not understand technology and work flow management.

The question is whether advisors and technologist can work together to formulate a free enterprise solution with an unprecedented consumer value proposition which will transform the financial services industry.

SCW

Stephen Winks

Stephen Winks

June 7, 2012 — 7:34 PM

Schwab’s challenge is incremental innovation adds complexity, the simplicity desired by all with out denigration of expert fiduciary standing can only be achieved with a comprehensive solution.

Yet as a custodian Schwab can not be comprehensive in its approach to enabling resources (authenticated prudent process, advanced technology, work flow managemenr, conflict management, expert advisory services support) as in doing so its support becomers prescriptive for expert fiduciary standing thus triggering fiduciary liability.

Thus, it will not be a custodian that supports advisory services, nor will it be a brokerage firm. Large scale institutionalized support for fiduciary standing will come from an RIA with none of the conflicts of a brokerage firm.

Will it be Focus or HighTower or will it be a third technology party vendor like Adhesion, no one knows. What we do know is what is required and how to make expert authenticated advice safe, scalable, easy to execute and manage as a high margin business at the advisor level. It is a daunting task as technologist do not understand advice and advisors do not understand technology and work flow management.

The question is whether advisors and technologist can work together to formulate a free enterprise solution with an unprecedented consumer value proposition which will transform the financial services industry.

SCW

Peter Giza

Peter Giza

June 8, 2012 — 5:38 AM

Speaking as a development and technology partner, this constantly changing message of who and what are considered viable SII integration partners is at best frustrating. RIAs are frustrated too. Several have asked me when will Schwab open access to their trading platform and we have to say “it’s coming, we just don’t know when.” Not exactly the position you want to be in. However RedBlack remains cautiously optimistic that the answer is “real soon”.

Kind regards,

Pete

Stephen Winks

Stephen Winks

June 8, 2012 — 3:00 PM

Pete,

The key to the simplification and ease of execution of expert fiduciary standing is prudent process (asset/liability study, investment policy, portfolio construction, monitoring and management) authenticated by non-negotiable, unassailable fiduciary criteria of statute, case law and regulatory opinion letters which expert fiduciary advice safe, scalable, easy to execute and manage at less cost than a packaged product.

The focus of advisory services support if it is to be effective for advisor use must shift from abstract incremental innovation, to a comprehensive fiduciary solution which requires a simplifying expert authenticated prudent investment process around which continuous enhancements are made. If technologist can focus on the consumer of their technology—the advisor—massive strides can be made in technological innovation and adoption, fostering an unprecedented level of investment and administrative counsel.

The development of the automobile was not built around a carborator but the vehicle. The industry is presently focusing on the carborator, not the vehicle that makes fiduciary standing safe, scalable, easy to execute and manage.

Schwab is trying to be helpful, but can’t because it does not want to incur fiduciary liability. The entity which can effectively manage fiduciary liability can reorder the entire financial services industry around expert fiduciary standing at a fraction of the cost consumers are paying today, affording advisors far higher margins than can be achieved today.

The modernity that is comming makes todays SRO discussion irrelevent, as why wouldn’t everyone want to act in the consumer’s best interest. Modernity waits for no one.

The anachronistic regulatory authority based on a world of 70 years ago when computers and ERISA did no exist, is about to be brought into the twentyfirst century, regardless whether brokerage interest want to support the best interest of the investing public or not. In a free market, there has never been an incidence where the consumer’s best interest did not prevail.

Yes brokerage interests are trying to craft a less than free market, where regulators are paid by the brokerage industry at the expense of the trust and confidence of the investing public and at the expense of the most professional group of advisorsin the industry focused on the best interest of the investing public.

Let’s hope if the brokerage interests prevail over the best interest of the investing public, there will still be those who champion the best interest of the investing public. Yet today, the likelyhood of one welcoming those conversations within a brokerage firm or regulator, does not bode well for the restoration of the trust and confidence of the investing public.

SCW

Peter Giza

Peter Giza

June 8, 2012 — 7:12 PM

Steve:

I will not claim to be a compliance or regulator guru – I am not. The issue at question here has all to do with putting forth a consistent message by Schwab to its RIAs and technology partners.

While you are correct that the automobile wasn’t built around the carborator (sic), it was built around collaborative efforts of various designers, manufacturers. It took the brilliance of Henry Ford to put them together to build line production and the rest is history.

If Schwab want to be the Henry Ford of technology in this industry the message and the management of technology partners has to be consistent. I am not saying things cannot shift to meet changing demand, but we haven’t even got out of the parking lot.

Users of technology like RIAs fall into two very basic camps; all-in-one and best component for the application. The all-in-one choice takes no real thought and the mentality is usually “no one gets fired for choosing IBM”. On the other hand making a proper choices based on your business need and application takes work and forethought.

Why do audiophiles but individual components, even stressing over which diamond stylus is best suited for a certain age and type of vinyl? You won’t see them buying a boom box or console stereo system – ever.

Pete

Stephen Winks

Stephen Winks

June 11, 2012 — 2:39 PM

Pete,

Schwab’s challenge is it is it is building a house without plans and is starting with the roof first.

If it is trying to support advisory services so it is authenticated to be safe, scalable, easy to execute and manage as a high margin business at the advisor level which simplifies advice, all of which advisors covet, it must build it around anexpert authenticated prudent process (asset/liability study, investment policy, portfolio construction, monitoring and management) in the advisors best interest. There should be multiple vendors for each element of the prudent process which mitigates Schwabs fiduciary liability as the advisor makes a choice of vendors.

For example, account aggregiation is central to the Asset/Liability study. Account aggregiation vendors like By-All-Accounts, simply need to create and authenticate an expert Asset/Liability Study which is an important (some would argue the most compelling in sales) element in a expert authenticated prudent process in support of fiduciary standing in the consumer’s best interest. This capability would be a mustt have not a nice to have tool for every advisor as it establishes a clear understanding for the consumer exactly how all their assets and liabilities look as a portfolio essential for the continuous comprehensive counsel required for fiduciary standing.

By Schwab focusing on the big picture intellectual capital that are required to support fiduciary standing, it moves from aggregiating desparate technology and increasing complexity to actually solving problems central to acting in an advisory capacity. What is missing is an understanding of advice/fiduciary standing which manages disperate technology into an inexpensive easy to use system.

The audiophiles question you raise is on target, do we want every advisor to become a process and technology expert each having to reinvent the wheel, or do advisors just want to use the expert process and technoloy to deliver expert advice. It is like having a physician having to invent a heart and lung machine before they can practice medicine. Advisors want expert authenticated systems they don’t want to build them.

The best thing Schwab could do is to sponsor a mapping of resources that would make advice safe, scalable, easy to execute and manage as a high margin business at the advisor level and let the free market fight it out on the basis of the depth and breadth of counsel supported. Wall Street would be at a loss because of its cost structure and inability to adapt as the solution is built around the best interest of the consumer and the advisors that serve them. Schwab would win big.

SCW

Peter Giza

Peter Giza

June 11, 2012 — 4:53 PM

Steve,

The main issue is there are no common custodial standards that define bid-directional data, work and messaging flow – note the word “common”. While each custodian may have an “pen standard” it is at best open only to vendors because no other custodian is going to leverage the work of the competing custodian. There are no collaborative efforts among these platforms to make it easier for clients and vendors alike. Why? – fear of asset erosion.

Several months ago an open standards collaborative was floated to several CXOs within the custodial ranks as well as market analysts. The result? Only TD Ameritrade responded. The collaboration included RIAs, Custodians, Technology Vendors as well as industry analysts and other sources of intellectual capital.

The problems are so basic yet there are no common solutions. For example:

1) The reporting side doesn’t consider what the trading side needs – left brain .vs. right brain.

SYMBOL = FPA
CUSIP = 123456789

REPORTING:

SYMBOL = FPA

CUSTODIAN:

Custodian A, symbol = FP.A
Custodian B, symbol = FP-A
Custodian C, symbol = FP/A

TRADING:

Symbol = FPA

This example shows the lack standards between custodial systems that have an enormous trickle down effect on portfolio management (PMS) and trade order management (TOM) systems. Every PMS now has to carry a translation table to manage the internal custodian symbology.to a publicly traded symbol.

If the PMS doesn’t send the translation data to the TOM, now the TOM has to have a translation table which represents yet another management data management point and opportunity to inject errors.

2) The publicly traded symbol CASH is used by some systems as an internal identifier. This is just PLAIN WRONG. Never should a publicly traded symbol be misused as an internal identifier that can make its way into the public in any way shape or form.

3) CUSIPs are gospel. How is it possibly OK to tack anything onto a CUSIP whether pre or post-fix?

I could go on and on…

Now, certain persons would like to use what I have outlined to argue that all-in-one solutions are better because they don’t have these problems – right? Wrong. All-in-one solutions have to solve the same problems, they just get to do it behind the scenes because the own every single data flow source.

What it should say to the reading audience is that technology vendors who offer freedom of choice and independence (see the audiophile reference in the previous posts) are working very hard to make all the cruft we put up with as invisible as possible. Occasionally a bump in the road comes into light but those bumps are usually smoothed out pretty quickly.

In closing I say that until the industry, including the very RIAs that are being served, takes these issues seriously and collaborates, it well be the same ole, same ole. And that means the onus will be upon the technology vendors to deal with unending workarounds to shield the end-user from the maelstrom.

Pete

Stephen Winks

Stephen Winks

June 12, 2012 — 12:03 AM

Pete,

The challenges you cite are a matter of how one approaches portfolio construction and are easily resolved. Retail packaged products are not conducive to portfolio construction in terms of cost, transparency, data accessability and technology. Essentially retail products create unmanagerable problems in portfolio construction which render them obsolete as you have cited. It is up to the management of packaged product companies to adapt, or perish.

Our top private banks can manage an unlimited number of unique custom portfolios in accord to expert fiduciary standing at a fraction of the cost of a packaged product which can not be client specific by limitation of prospectus requiring a specific generalized investment mandate.

We are about to see large portions of advisory services support for brokers to be rendered obsolete by a new wave of technology (asset/liability study, investment policy, portfolio construction, monitoring and management) specifically designed to support and authenticate expert fiduciary standing.

It is best to forget about putting a square peg in a round hole, no matter how hard one tries it will not fit. A new approach is required that is designed to support fiduciary standing.

There are significant economic incentives to advisors and their supporting firms to support modernity and fiduciary standing in the best interest of the investing public.

SCW

Peter Giza

Peter Giza

June 12, 2012 — 2:09 AM

Steve,

I am not clear on what it is you are espousing. What I will say is that we are in violent agreement that a new wave of technology is here and it represents a seachange in the way firms can and will conduct business. This does not obviate the need for standards whether official or de facto accepted as in the case of most Internet standards of past.

If you believe that any one platform is going to be the panacea for finserv then I think you should look to the sell side or prime brokerage arena for that one platform – it doesn’t exist and there is a lot of experience on that side of the investment house.

History shows that rarely does the best technology win. The Indian Motocycle company had more advanced technology than its’ archrival Harley Davidson, yet H-D won the battle – why? Because H-D was a very marketing savvy company and it knew that that was the real battlefield. During the depression, H-D delivered scant few units but kept itself alive selling accessories.

The same holds true in this space. If the winds of marketing and sales are not in your favor it doesn’t matter how great your technology is. Add to that the independence factor, lack of understanding, misinformation and you get fragmentation.

Also keep in mind that the banks, custodians and BDs wield great power and if they don’t want to play with you they don’t have to. It’s all about cooperative effort.

Pete

J. L. Livermore

J. L. Livermore

June 13, 2012 — 6:09 AM

Mr. Giza,

I do not believe that CS or most other custodians and certainly not the BDs, have much interest in listening to you or anyone else about these issues. They all have a long history of this type of behavior and don’t take kindly to being told the emperor has no clothes.

I find it amazing that no other vendor has expressed themselves publicly regarding this. Then again perhaps they are looking at the potential political ramifications.

After watching the behavior of the markets for the past century and observing custodians the likes of CS and others, I would be simply amazed if what you propose even made it past your writing here.

Its ashamed that everyone is so focused on their own agenda rather than the industry and it’s constituency they are supposed to serve.

JLL

Stephen Winks

Stephen Winks

June 14, 2012 — 1:25 AM

Pete and JLL,

Both well said and you may well be right.

What a terrible inditement of the brokerage and custody industrys and its regulators who are charged to protect the best interest of the investing public.

Brilliant professional assessment that the consumer’s best interest will always be a secondary consideration to the brokerage and custody businesses which thrive on maximizing transactions cost counter to the best interest of the investing public ?

Advisory services in the client’s best interest is diametrically opposed to transactions services in the best interest of brokerage and custodial services.

Perhaps it is time for advisory services to develop its own identity—when there are no mitigating circumstances which conflict in the consumer’s best interests.

SCW

RIABiz Directory

The Industry Sourcebook for RIAs

   |    LISTING


RIABiz Directory sponsored by:

Directory Sponsor Logo