The word-of-God consultant told the Omaha, Neb. software maker to build Eclipse, which worked well, and sparked demand for asset management and marketing experts

January 12, 2018 — 7:28 PM UTC by Brooke Southall


Brooke's Note: McKinsey-type consultants -- what are they good for? No sooner was Orion purchased by TA Associates three years ago than those fancy-pants private equity guys helped commission Bain & Co. consultants. See: Boston firm buys Orion Advisor Services as part of NorthStar succession dealThe Bain report boiled down to one recommendation. But it was a whopper: Be an investments platform, starting with rebalancing and going from there. What it does is to answer the question: How does Orion remain one of the Big Three -- with Black Diamond and Tamarac -- for RIA performance reporting software when it is owned by far the smallest company of the three. [Tamarac's owner Envestnet is a $2.4-billion market cap publicly traded firm and Black Diamond's owner is SS&C, which was big enough to swallow publicly traded DST for $5.4 billion this week.

Orion Advisor Services LLC made seven hires reflecting an ambitious new business model that bakes asset management into the performance reporting cake.

Following a blueprint completed by Bain & Co. after a major internal analysis, the Omaha, Neb.-based software company notably hired Evan Hatch as director of premier services, Sean Hollingshead as vice president of managed accounts and Heidi Meyer as strategic consultant.

TA Associates Management LP, headquartered in Boston and Silicon Valley, has owned a majority stake in Orion's parent firm, NorthStar, for three years. The private equity firm began its process of revamping Orion for greater growth by commissioning the blue chip consultant to examine where investments could best be applied. See: Orion's parent NorthStar tops 700 employees, finishes second Omaha campus and taps a super-exec from central casting to run it all

The aching need, it determined, was for Orion to develop its own rebalancing software -- and Eclipse was born. See: The four-year ordeal Orion's president underwent to launch Eclipse -- a sprint to stay in the race with Tamarac and Black Diamond for rebalancing.

"Eclipse was a multimillion dollar project," says Eric Clarke, founder and CEO of Orion. "It's been a big bet."

Necessary bravery

It's a bet that's paid off big-time. Orion boosted assets 50% in 2017, making inroads in a technical deficit thrown into sharp relief when facing off against Seattle-based Tamarac Inc. and San Francisco-based Black Diamond, both of which have in-house rebalancing.

Orion now administers data for 1,300 firms constituting $550 billion in AUA and over two million accounts.

"Sometimes hiring an outside firm solidifies something we already know," Clarke says. "It gave us some good courage." See: Eric Clarke rolls the API dice by posting Orion software's code online.

The dose of bravery was needed to shift the mindset from software to platform, says Joel Bruckenstein, producer of T3 conferences.

"Orion is striving to become more of a platform, as Tamarac has done," he says. See: How vendors fail RIAs -- and themselves in the bargain -- by insulting RIA intelligence

Chief 'Community' explainer

The Orion hires follow the emerging success of Eclipse and its even greater promise as it expands the company's value chain.

Perhaps most telling is the Hollingshead hire, not just because he was poached from a fellow NorthStar-owned business unit, CLS Investments LLC, also in Omaha, but also because Hollingshead most recently served as director of the investment advisor division there. CLS is a TAMP that manages about $8.5 billion of assets, up from about $5.5 billion three years ago when TA Associates bought the company.

Sean Hollingshead will sell Orion's new investing capabilities, including a peer-to-peer model marketplace, mostly to existing advisors. 

The CLS asset growth of more than 50% during that time period reflects how it has filled a sort of TAMP-to-TAMPs model. It sells model portfolios of ETFs that are sold for free on the platforms of Envestnet, FTJ FundChoice and others. CLS gets paid only by the five ETF providers whose funds are used as building blocks -- PIMCO, JPMorgan, Deutsche, Invesco's PowerShares and FirstTrust.

The hire of Hollingshead by Orion was a friendly "poach" that has happened on other occasions within NorthStar, says CLS Investments CEO Todd Clarke.

Hollingshead was recently charged with launching Riskalyze's robo Autopilot on behalf of CLS and succeeded in getting it from zero to $250 million of AUM in short order.  Now he will see through the launch of Orion Communities, a peer-to-peer model marketplace, largely to existing advisors under the Orion umbrella. 

Communities allows Orion clients on the Eclipse trading platform to share model portfolios with each other in an open-source platform. Orion will assist RIAs in selling models by collecting billing contact information from RIA users and then make that information available to the model makers through Orion Communities.  

Another key hire is Kelly Waltrich, chief marketing officer. As reported in RIABiz, before arriving at Orion Waltrich made her mark as senior vice president, head of marketing & communications at eMoney Inc., which was acquired by Fidelity Investments of Boston. Clarke says he met Waltrich at his firm's FUSE hackathon in Utah last year. See: Eric Clarke keeps FUSE lit by rebalancing deep-suburbia hackathon with BlackRock and DFA real economiks.

"We were rolling out our Community and we needed somebody to explain it," says Clarke. "We're absolutely certain to roll-out technology in 2018 to help advisors customize portfolios."

Free portfolios

Heidi Meyer Meyer will analyze the needs of Orion’s clients and relay them to Orion teams for the purpose of designing training and service programs.

By March, Clarke expects to be able to help RIAs do direct indexing, thereby helping them to disrupt ETFs, passive mutual funds and robo-advisors. See: Wealthfront calls its smart beta approach 'superior' to Dimensional Fund Advisors largely because DFA works with RIAs.

"The cost of building a portfolio is near zero," he adds. "If advisors think fee compression can affect them, we can supply them with portfolios for free" to reduce all-in costs to investors.

The strategy of edging into investing is both an offensive and defensive strategy, Bruckenstein says. "Big picture ... there will be compression in fees advisors pay for portfolio management and reporting, so firms like Orion need to offer more value-added services, which is what they are doing. [It's] good for Orion, good for their clients."

Spreading out

As director of premier services, Hatch, who most recently served as the director of operations at Pacific Life Insurance Co., will travel to work with big RIAs onsite. 

Meyer joins Orion from Frontier Asset Management LLC of Sheridan, Wyo., where she served as director of national accounts for nearly six years. Meyer will analyze the needs of Orion’s clients and relay them to Orion teams for the purpose of designing training and service programs.

Ben Frantz, Paul Wick and Jina Horton were all recently hired as vice presidents of business development and charged with expanding the company’s geographical selling footprint. Frantz will cover the Southcentral region, Wick will cover the Midwest and Horton, the Northwest.

Wick previously worked for Gemini Alternative Funds LLC of Chicago, which services the investment community as a managed account platform working with dedicated managed accounts and co-mingled funds.

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Stephen Winks said:

January 15, 2018 — 6:47 PM UTC

The FinTech pedigree of the Clarke family is perfectly suited for highly disruptive innovation (not possible in a conventional brokerage business model), essential for expert standing in advisory services. The size and reseources of a holding company has no bearing on market stature. For example, more than 30 years ago CALPERS bought the source code of the old Computer Aided Decisions sub-accounting, trade and order routing and reporting technology through which it crossed al its buys and sells and sold trading volumn to electronic communications networks for a sum exceeding the actual cost of trade execution. This first zero trading cost environment was important as it enabled CALPERS to fulfill its fiduciary duty as a prudent expert to treat trade execution as a cost center to be minimized in its client's best interest rather than a profit center. Orion has this capability and it can be responsive to the advisor's responsibility to act in the client's best interest as a prudent expert. This is not possible in a brokerage format. Thus Orion preempts is brokerage focused competitors with a far superior value proposition and prudent expert standing. Importantly, Orion's free portfolio innovation directly resolves the problem that 40% of the investor's earnings on their retirement savings is lost to brokerage fees, commissions and administrative cost, again not possible with expensive packaged products distributed by brokerage firms. Again the RIA gains a competitive edge in cost and value. perhaps most profound, is the fact that models digitize hundreds of data points that empower the advisor to have direct access to real-time client holdings data which makes the continuous, comprehensive counsel of fiduciary duty possible which is not possible with expensive packaged products. This is perhaps the most definitive competitive edge for advisors relative to brokers. So, the fact that Orion can uniquely serve RIAs in ways brokers can't, is its ultimate edge, not the size of its holding company. Importantly, today we have RIAs which are both large and scalable who value a superior value proposition as a means to grow their business. CapTrust, Edelman, Savant, etc. are paying attention to the vulnerabilities of its largest incumbent competitors who have self-selected not to compete on value proposition and price. . SCW

Peter Giza said:

January 15, 2018 — 8:43 PM UTC

Stephen's is on point with his comments on the Clarke family. There is a huge trust and reliability factor there which trumps the size of competing financial backers dry powder kegs. I think it's important to note that prior to the Bain report, Orion was well underway in its execution of Eclipse (initially the code name for the rebalancing platform). Their interim platform known affectionately as TOM (Trade Order Management) not only helped them bridge the gap, but it also served as a proving ground for various Google and AWS technologies. The result was a much stronger devops readiness and utilization of newer cloud technologies. This enabled Orion to have a feature rich and stable post-beta debut. Pete Giza Spitbrook Associates

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