Any independent advisor will say that the technology holy grail is one unified and integrated system that does everything for them — from CRM to financial planning, to trading to rebalancing and reporting. It has a client portal, a robo platform for small accounts, includes risk profiling, generates proposals, digitally opens accounts, manages documents, works with multiple custodians and broker-dealers, provides compliance oversight, has automated workflows and more.
Finally, this holy grail has best-in-breed functionality that is tightly integrated and can service the many different types of clients ranging from emerging investors all the way to the ultra-high net worth. Easy, right?
Unfortunately, because this vision is so vast and the industry is so fragmented with thousands of small businesses that are all different, no one has cracked this code. Therefore, independent advisors are left to fend for themselves and cobble together their own tech stacks from the hundreds of advisor technology providers.
Which brings up a juicy opportunity — and potential market dominance — for whoever in this technology and custodian ecosystem that does become the "owner" of the advisor desktop. That means the workstation or system advisors log into every morning to process business.
The firm that succeeds in this gets to charge two-way rents from advisors' clients as well as from product providers in the form of basis points for accessing the underlying investments, separate accounts, funds, cash vehicles and other products that generate revenues in the investment management value chain.
Ultimately, this positions a firm to "win" wealth management, just as the tech titans Google, Amazon, Meta (formerly Facebook) and Apple have won their categories. Also, due to the fast growth and success of the RIA industry, there are trillions of dollars at stake making this once sleepy sector in financial services a potential land-grab for whoever can deploy the "platform" that can at least provide most of the functionality to solve for the vast majority of advisory firms.
Winners and Losers?
In this "Squid Game," who has the most to gain or lose? Clearly, legacy RIA custodians currently are benefitting the most from the success and growth of RIAs as they extract their two-way basis points in their dual roles as custodian and product distributor.
As a result, there always has been a delicate balance of power between the custodians and the advisor technology community that RIAs depend upon to manage and grow their businesses. Of course, when advisors are more efficient via technology, they grow faster, fueling the scale and profitability of the custodians, creating a mutually beneficial relationship.
At the same time, custodians desperately don't want to become disintermediated by a technology layer and end up de-facto commoditized processors, subservient to their new technology overlords.
This is why custodians continue to try, and try again, to create a bundled technology plus custody solution to keep the technology wolves at bay, while strategically attempting to gain market share from their competitors via a new, end-to-end, complete, comprehensive, full-featured, integrated, does it all, etc. — "technology platform."
Case in point: Pershing's new initiative launched last month to much fanfare: "Pershing X will deliver the industry's leading end-to-end advisory platform, helping financial services firms solve the challenge of managing multiple and disconnected technology tools and data sets for their advisors to fuel business growth," said Jim Crowley, Pershing CEO in its news release.
Troubled History
This latest development from Pershing is not a surprise in the advisor industry.However, big custodians have a long and problematic history in trying to deliver a silver-bullet solution.
