A Software Delay That's Good News

When I speak at conferences, I often ask how many advisors are using a service bureau or Web-based portfolio accounting application. I have never seen more than four or five hands raised for every 100 people in the room. Most RIAs still prefer to have their data sitting on their desktops or network servers. They generally remain squeamish about letting their data be managed remotely by a service bureau, or allowing their data to reside on a Web server hosting their portfolio accounting application.

Some advisors have specific concerns about giving Advent or Schwab control or access to all their account data at all their custodians, which is what would happen if they sign up for a portfolio reporting service bureau or Web-based application. (Advent already offers its own service bureau.) Some advisors simply prefer not to entrust any company with all of their customer account data.

RIAs are entrepreneurs who like to run their own show. They covet their ability to do business on their own terms. To the extent they rely on a service bureau or Web-based application to get their account data on their customers, I believe advisors feel they compromise their ability to control their own fate. And RIAs fiercely resist efforts that they believe could compromise their independence.

Which is why Schwab's decision to postpone its service bureau to focus on completing the re-architecture of Centerpiece to SQL is good news for RIAs. An SQL portfolio management software application should support your independence and freedom to control your own fate, making it easier for you to export client data out of Schwab's software and into other applications. Schwab is taking a daring step in giving you that freedom.

And at least one new challenger is on the scene that you could switch to, Optima Technologies' Interactive Advisory Software. That SQL-based desktop software, which will also be sold in a Web-based version and with a service bureau, has been offered for only a year, and is still being perfected. However, the company is run by an experienced software entrepreneur, Herzl Hyton, who has the cooperation of a core group of financial planners in developing its software, and reliable industry players tell me Optima is close to becoming a competitive threat to Axys and PortfolioCenter.

More significantly, Schwab's decision to ease an RIA's pain when converting out of its portfolio accounting system is a sign that the reality of the market is being felt: Even the most influential firms RIAs depend on must ultimately yield to RIA independence. It is probably no coincidence that key marketing executives behind the technology plans drawn up two years ago by Schwab left Schwab in recent months, never completing aggressive plans to create a proprietary technology platform. I believe it all adds up to signs that independence is winning, and that's the real news behind the Schwab announcement that it was postponing its service bureau.

The other significant news to come from the announcement is that Schwab is shortening its list of vendors that Centerpiece users can rely on for outsourcing. In delaying the launch of its own in-house service bureau that was to be administered by Schwab Performance Technologies, Schwab will now make referrals to Back Office Support Services (www.thebackoffice.biz), Etelligent Consulting (www.etelligentconsulting.com) and B-Ready Software Solutions (www.b-readysolutions.com). These are three respected independent vendors that each have their own way of serving advisors and I hear good comments from advisors about all three.

Schwab had conducted extensive beta testing on its own service bureau over the past year using the current version of Centerpiece, with more than a dozen advisory firms participating. But the reality was that Schwab will not have a service bureau until the SQL project is done, and Schwab says that won't be until early 2004.

Operating a service bureau from a desktop application is inefficient, and that is particularly true of Centerpiece. The service bureau must download the RIA's account data and reconcile it before the RIA starts the day at 9 a.m. Often an account database cannot be reconciled by 9 a.m., so it is delayed till later in the day. If in the meantime the RIA firm changes the database and then later gets a new version from the service bureau, it could cause confusion and compromise the integrity of the database. Since Centerpiece has no way of tracking whose version of the database was last saved and has no security controls, running the service bureau on Centerpiece could have been a challenge. It's also fair to say that continuing to provide 15 or so RIAs with a free portfolio accounting service while the SQL project moves forward was not financially attractive to Schwab.

When the SQL project is done, a Schwab service bureau will be much easier to operate efficiently. It seems like a fine idea that Schwab has stopped work on the service bureau for now. This is especially true because many advisors have been so slow to adopt outsourcing portfolio reporting and are likely not to be all that interested in letting Schwab see data on all of their clients' assets–including those held at other custodians. Offering a Centerpiece outsourcing service through three independent vendors makes sense as well.