Schwab bids to become the 'Zagat' of RIA technology and to nix ink signatures from RIA life

Neesha Hathi presents the dueling intiatives as next steps in her custodian's march toward serving 7,000 advisory firms

Wednesday 11.14.12 by Brooke Southall and Lisa Shidler

Brooke’s Note: We will add thoughts to this article as we get them in. Schwab has been known as the RIA custodian with the tightest integration with the smallest pool of third-party providers. This announcement adds a wrinkle to that discussion and realm of criticism.

Schwab Advisor Services is taking a new tack in helping RIAs solve their software challenges by establishing itself as a the de facto Zagat guide to third-party technology vendors. The San Francisco-based RIA custodian announced today at its Schwab IMPACT conference in Chicago that it is launching a service called Marketsquare that creates a central clearinghouse of write-ups by advisors of their experiences in using myriad vendors in the RIA world. The service will be free and exclusive to advisors that use Schwab as an RIA custodian. It is also launching a survey to rate technology providers. The ratings will be made on a five-star basis.

The other big initiative relates to the elimination of paper documents and the need to sign and mail them — a workflow issue. See: Schwab escalates the RIA custody arms race by releasing more plug-in business practices called workflows.

Wiki reviews

Neesha Hathi, who is overseeing the effort, refers to the Wiki effort as a “new pillar of Schwab Intelligent Integration” and the equivalent of what Zagat is for restaurants. Schwab has already begun collecting the reviews and they will be available for viewing as of 2013.

Schwab will need to show finesse to become an independent voice when it has a horse in the technology game — and a few ponies. Schwab not only owns Schwab Performance Technologies — arguably the largest portfolio accounting company in the RIA business — but it has an interest in the technologies to which it has wedded itself through deep integrations. These include firms like SalesForce, Salentica, Envestnet | Tamarac, Junxure and Black Diamond.

Despite the multi-faceted challenges Schwab faces in positioning itself as an arbiter of information, Hathi believes her company can handle it. See: Schwab and Advent Software forge historic agreement — mostly for the good of Black Diamond users for now.

“Clients have said: it would great if you could aggregate that information,” she says. “We think we can bite this off.”

One aspect of the effort that gives Hathi confidence is that Schwab — for the most part — will allow advisors to communicate to advisors with Schwab supplanting itself merely as the medium.

“It’s not that it’s Schwab’s point of view. We’re the aggregator of points of view. We’d feel uncomfortable putting our own perspective,” she says.

Joel Bruckenstein: This will be controversial but it's worth a shot.
Joel Bruckenstein: This will be controversial
but it’s worth a shot.

Imperfect knowledge

While the idea is innovative, Joel Bruckenstein, who sets up the Technology Tools for Today (T3) conference says there a wide range of challenges that come with the system. For instance, he points out that many advisors are ill-equipped with technology and may give inaccurate reviews.

“Many advisors aren’t technology experts. I’ve been at conferences and heard advisors speak inaccurately about software that they’re using,” Bruckenstein says. “So, the accuracy of the reviews could be in question. The reviews will only be as good as the advisors’ knowledge.”

He also wonders about Schwab’s ability to edit the reviews and says that could be a problem because the firm could in fact edit out important insight from advisors.

Hathi says Schwab will do copyediting of the remarks but otherwise the reviews will be released verbatim. Yet, she allows that Schwab will write a little introduction for each vendor prefacing the opinions proffered by advisors. Those preambles may not be completely devoid of editorial voice.

Which way to opt

Brian Shenson [on left]: What does it say about a provider who doesn't want to be listed?
Brian Shenson [on left]: What does
it say about a provider who
doesn’t want to be listed?

Another challenge is that vendors have to opt in, which means that some vendors are choosing to opt out. “A lot of the second or third vendors won’t opt in especially if they’re not getting much business and advisors won’t get to see reviews about those vendors,” Bruckenstein says.

Marriott Murdock, brand manager for NetDocuments, says he favors Schwab’s approach as a vendor.

“Schwab’s initiative with MarketSquare will provide yet another technology resource for advisors to find and vet technology options. Keep in mind, conversations and reviews about technology are happening across the web, whether or not the vendor knows about it.”

But Bruckenstein is not certain that more is always better. He has talked about his firm offering reviews of technology vendors but says because of these myriad concerns his firm decided against it. “It’s a lot more complicated than you’d think,” he says. “This will be controversial but it’s worth a shot.”

Schwab intends to start collecting reviews Wednesday and also will solicit vendors to join and hopes to offer up its first reviews by the first quarter of 2013.

But Josh Meyer, principal of Advisor Tech Tools, a third-party review website is less certain that Schwab should trod into the review business.

“There are many third party review sites for RIA technology – Advisor Tech Tools, Advisors4Advisors, and Investment News. Other great sources like T3 and Your Silver Bullet are independent too. I think RIA’s should really beware their listings. What will they do when a good percentage of advisors rate PortfolioCenter as “just ok, but very dated” like on all the other review sites, while a company like Black Diamond or Orion or FinFolio get outstanding reviews that rave over their new technologies? Also, many technologies have different interfaces with different custodians. TD Ameritrade offers straight through processing for trading with many portfolio rebalancers, while Schwab does not, will Schwab highlight this in the functionality section of their product reviews?”

There’s no question that not all technology vendors will join, but Brian Shenson, vice president of advisor technology solutions for Schwab Advisor Services, says that advisors can read a lot into a company’s decision not to participate. “We don’t feel this replaces other outlets that are more comprehensive but what does it say about a provider who doesn’t want to be listed? If they can’t stand by their product that should send a message to advisors.”

Final Note: I might add that has reviewed a large number of vendors that can be foundhere

Neesha Hathi | Joel Bruckenstein | Brian Shenson

Schwab | SalesForce | Salentica | Junxure | Advent | Black Diamond | T3