THE GLUCK REPORT, Part I: Farewell to Portfolio 2000

With this backdrop, it does seem believable that the decision to end Portfolio 2000 is attributable, as Advent says, to poor business conditions, along with a realization that its aggressive acquisition strategy–buying up small technology companies and expanding into the financial planner and advisor market–simply was not working. "We tried to run the business and make it work," says Nye, an executive VP for the investment management business at Advent. "But in 2003, expenses were not aligned with revenues. We cut expenses across the entire company and when looking at this section of the company, we had to make decisions about where we would cut."

Nye says that it made little sense to continue to invest in developing Portfolio 2000 when it was having great success with Advent Office Essentials, its Axys PMS product sold at a deep introductory discount to advisors with assets under management below $50 million. "Advent Office Essentials is a lot better than Portfolio 2000," Nye says. "Despite our investment for two years in Portfolio, it is now clear to us that we have a product with high satisfaction rates and that is selling at a much faster clip. The comparison is not even close."

Dead on Arrival?

But it is clear that Advent never really tried to make a go of Portfolio 2000. It really killed the product within a few months of buying TechFi by telling Abar he no longer had to work in the company, by laying off most of the development and sales staff, by moving TechFi from Denver to San Francisco, and by announcing (in a story I wrote in April 2003) that it intended to kill the desktop product. Who would buy it after that was announced?

Beyond the fact that it has left 278 advisors scrambling to find another PMS solution, the death of TechFi has broad implications for independent advisors because advisors are left with only two well-heeled, established PMS companies, Advent and Schwab. Both are struggling for advisor trust. They have both made attempts to leverage their technology in ways that would make advisors rely more on them and perhaps become totally dependent on them for their portfolio data feeds. Schwab showed its hand when it announced three years ago it would no longer sell its software to advisors who were not Schwab custodial clients–a position it has softened on since. Advent, meanwhile, has interposed its Advent Custodial Data Service in all advisors' downloads and worried advisors by its actions with TechFi. The uneasy feeling many advisors have about these two companies is going to be hard to change.

Advisors should not be surprised. "It's standard for software companies to try to lock in their clients' data into their systems, making the cost of transition to another program high," says Bill Ramsay, an advisor in Raleigh, North Carolina, who has taught himself programming and uses Portfolio 2000. Ramsay points out that companies like Advent and Schwab are simply pursuing their business goals. Plenty of advisors like Advent and love Axys, but you just need to be aware of where Advent's goals might affect yours.

Meanwhile, the death of TechFi has also made advisors uncomfortable about trusting any new, innovative PMS company, fearing it, too, will be bought out by a larger company and that the lifeblood of their business will be threatened.This makes it less likely that advisors will ever feel comfortable migrating their portfolio accounting application to a Web-based application. Most advisors don't like having their data out of their office.

Better Times Ahead

How will the PMS market shake out? My guess is that, over the next couple of years, it could get better for advisors. New PMS companies are bound to rise up. Developing software has become much less expensive, and tools developers use are better. Plus, with Schwab PortfolioCenter now migrating to an open SQL database, it will be much easier to change PMS applications, and Advent cannot resist the trend toward open architecture and will have to follow suit. Gradually, over the next couple of years, two or three new small competitors will become viable alternatives to Advent Axys and Schwab PortfolioCenter. Most established advisors will stick with their Advent and Schwab software, but new advisors will choose the new companies. The fragmented independent advisor market will get some new competitors to Advent and Schwab, and advisors will remain fragmented.

Abar, meanwhile, is spending his time traveling and has transformed himself from awkward tech geek into a wealthy man about town who likes fast cars and motorcycles. He is also taking CFP classes during a "two-year vacation," and still has another three years left on a non-compete contract with Advent.

In an interview, Abar recently told me that he tried buying back the company. "I sent Stefanie DiMarco an e-mail about a year ago saying I'd be interested in buying back the company," says Abar. "I never did get a response." He says that "from a shareholder perspective, TechFi did very well.But from a client perspective, I wish I never would have sold it. I should have done more due diligence on Advent."

Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (www.advisorproducts.com), which creates client newsletters and Web sites for advisors. Advisor Products may compete or do business with companies mentioned in this column. He can be reached at [email protected].