Brooke’s Note: My apologies for the lost-some-steam portion of the headline to this article. But when I sprayed out e-mails to an esteemed list of people in the RIA business asking for what they considered to be the top technology bright spots in 2012, the general response was that it was a year of apparent drowsiness. This assessment, of course, activated my contrarian hunch that in fact this was a huge year in technology — but I’ll save that for the coming article. For this article, I cede the floor to people who live and breathe the business every day and whose views should not be lightly regarded. Mike Golaszewski, a top Advent-Black Diamond technologist, took the boldest crack at defining the bleeding edge and he bats clean-up in this compendium because of that and because he plays off a couple of comments made.

Philip Palaveev, chief executive of The Ensemble Practice

I think we are in the middle of a very important process that has been under way for the last few years.

The biggest technology question in the industry today is whether the technology environment of an advisory firm in the future will be defined by a number of separate, independently owned software solutions or by a mega-solution that incorporates and integrates all aspects but perhaps absorbs too much control and influence.

The multivendor model promotes the sense of independence, advisor ownership of the data and the solution, and gives advisors as customers the negotiating power. It is also transparent and does not allow for software to become the gateway purchase to custodian or broker-dealer services. This model, however, implies fragmentation, asks the advisory firm to absorb the cost of system integration and perhaps is not as economically viable as separate vendors that are not large enough to reach critical mass and compete. See: RIAs flock to Dallas for the T3 technology conference.

The alternative is the mega-solution that promises integration and scalability but perhaps comes at the expense of “captive” data and a tie-in with a platform — a turnkey manager, custodian or broker-dealer. See: Beta test of Schwab’s grand integration plan draws rave, but will the slow rollout prove detrimental?.

The mergers that we are witnessing are in my mind a step towards the mega-solution — with several companies putting the pieces to together. That said, the flag of independent software solutions continues to wave high as well, with products such as Junxure continuing to hold the majority market share (for their particular app). Advisors may not realize it but they make a choice between those two alternatives every time they choose to replace or renew a key system. See: Greg Friedman is set to finally bring Junxure to the cloud and beat back the Salesforce-ification of the industry.

Philip Palaveev: The flag of independent software solutions continues to wave high.
Philip Palaveev: The flag of independent
software solutions continues to wave high.

I was also very intrigued with the investor-friendly technologies that allow investors to access their data in a better way and also for advisors to present their work to investors. I have had a biased exposure to the Finance Logix customer portal and tablet software since they are in Seattle, but I am fascinated at how theirs and other similar designs not only change the presentation of data but perhaps the way we think about planning. See: Finance Logix makes a splashy bid for RIA business with its inaugural conference in Las Vegas.

Finally I am surprised that we are not seeing more customized enterprise planning systems targeted at large RIAs. The largest firms need a complex solution for billing, internal time management and resourcing planning, and at the moment many still use spreadsheets or jury-rigged fields in their portfolio reporting system to keep track of staff utilization, team capacity, billings by professional or partner and other important factors. Such enterprise systems are common for law firms, CPA firms, PR agencies, etc., and perhaps they will appear for large advisory firms too.

Spencer Segal, CEO of ActiFi Inc.

There has been continual innovation in the tech space — most of the major vendors we track have had major upgrades to their platforms. See: 'Ocean’s Eleven’-grade RIA sharpies set to play Vegas at MarketCounsel’s 2012 Summit.

The biggest issue in the tech space is that the technological capabilities are becoming more robust and the integration landscape more confusing, and advisors are struggling to figure out how to get a robust return from the investments that they have made in new technologies.

Joel Bruckenstein, producer of the T3 conferences

There may not have been a lot of blockbusters, but I think it has been an important year technologically. There was nothing really big at Schwab IMPACT, although there are incremental improvements taking place. See: The 2012 Schwab IMPACT conference comes off with a theatrical flair.

TD Ameritrade seems to be doing very well with its technology initiatives. MoneyGuidePro was a big deal. I think FinanceLogix RIO was noteworthy. Apple Mountain Lion and more-robust Apple hardware across the board. Windows 8 is very important in my opinion, although I appear to currently be in the minority. See: From Schwab IMPACT’s dizzying array, one free agent tabbed FinFolio and its use of Windows 8 as a takeaway.

Laser App Software is moving to the cloud. Advent is moving to the cloud. See: A year after the Advent-Black Diamond deal, the merged company is making some big chess moves.

I think 2013 will start off with a bang. Look for a number of compelling technology stories to come out at the 2013 T3 Conference. See: Joel Bruckenstein and Bob Veres part ways to do their own conferences.

Joel Bruckenstein: Windows 8 is very important in my opinion, although I appear to currently be in the minority.
Joel Bruckenstein: Windows 8 is very
important in my opinion, although I
appear to currently be in the
minority.

Mike Golaszewski, managing partner of Element-12; senior director and head of product for Black Diamond.

I think we are in the middle of a very important process that has been under way for the last few years.

If anything, I’ve noted a tremendous amount of new technology investment in the RIA space that started to be notable around 2009. It’s as if vendors suddenly realized that there is real money here.

I don’t think the “mega-solution” is one that matches advisors’ spirit of independence. When I was at Schwab, we used to joke that we had 6,000 small business as clients and they all had 6,000 different ways of doing the same thing.

Advisors like choice, they each have a slightly different focus and value proposition, and they each bring a unique way of doing things to the table. My belief is that they will continue to pick the vendor solutions that best match their practice and/or focus, and work to get them integrated (more below).

I don’t see the “mega-solution” ever gaining traction. There is just too much differentiation to make a “one-size-fits-all” platform viable. See: Addepar hits $50 billion of assets and turns its eyes to Advent-Black Diamond’s plump RIA market.

I think the more pertinent question is how many advisors will begin choosing to outsource their technology. It’s not academic. There was a tremendous —tremendous!— amount of discussion around “cloud technology” when I was at IMPACT. But more impressive to me was the depth of understanding that many principals had about what “cloud” actually means (in other words, it’s now more than a buzzword). There’s a huge cost and efficiency gain for all scales of business when all you have to support in your office is a browser. It’s exactly why companies like Salesforce are making rapid gains in our space. See: Greg Friedman is set to finally bring Junxure to the cloud and beat back the Salesforce-ification of the industry.

I can answer one question directly: the companies that risk obsolescence are those companies that make you install a fat client (i.e., “software”) on your desktop. Software is going away. And by the way, so is the desktop. See: Advent envisions a cloud-based world under stormy Las Vegas skies at the software giant’s annual confab.

The multivendor model promotes the sense of independence, advisor ownership of the data and the solution, and gives advisors as customers the negotiating power. It is also transparent and does not allow for software to become the gateway purchase to custodian or broker-dealer services.

This last point is a big deal for advisors. It’s one of the reasons why NetX360 will never capture the mindshare in RIA-land that it commands in IBD-land. See: How a big Atlanta RIA kept sledding with technology after snow paralyzed the city.

I don’t agree completely with Palaveev’s point that this [choose-your-own] model, however, implies fragmentation, asks the advisory firm to absorb the cost of system integration and perhaps is not economically viable as separate vendors are not large enough to reach critical mass and compete. Depends on the market you are playing in. There is plenty of room for completion in the [portfolio management system] space, for example. However, it’s really hard to make money in rebalancing, for example. I expect that some of the smaller companies in this space won’t be around as independent for much longer.

In response to Palaveev’s point that: “The alternative is the mega-solution which promises integration and scalability but perhaps comes at the expense of “captive” data and a tie-in with a platform — a turnkey manager, custodian or broker-dealer.”

There is a different alternative here that you are starting to see play out, especially on the custodial side. Advisors have gotten smart and are starting to demand open access to their data and interoperability of systems. This isn’t a mega-solution, but it’s a nascent demand for standards that allow their custodial data to flow seamlessly from one system to the next.

This is what I think will happen, and this is when I think the technology landscape explodes. It happened years ago on the buy-side; vendors who play in that space are virtually forced by their mutual clients to play nice with one another and make sure that their systems talk to one another. They’ve been forced to develop standards and protocols and other things that ensure this interoperability.

RIAs never had the gravitas or collective power to force their custodians and vendors into doing the same thing, but that is starting to change. Look at TDA’s open-API model, Schwab’s subtle shift in strategy with SII (I predict this will move to an API model in a few years), and Fidelity’s embrace of API integration for its WealthCentral partners. See: TD Ameritrade showcases what API can do with slick Veo-iRebal harmonization.

The real future isn’t a mega-solution: the real future is turnkey interoperability between key systems that will be driven by advisors’ demands and most likely led by custodians and large technology vendors. It happened on the buy-side; it will happen on the sell-side.

In response to Palaveev’s point that: “The mergers that we are witnessing are in my mind a step towards the mega-solution with several companies putting the pieces together.”

Don’t completely agree. I think some of the mergers that you’ve seen are prompted by a tough market position (Tamarac, RedBlack, iRebal play[ed] in an extremely thin market with not a lot of revenue potential) and a desire to fill in perceived gaps within your product offering (Envestnet can now say that it has a leading rebalancing solution in its arsenal).

To Palaveev’s point: “That said, the flag of independent software solutions continues to wave high as well, with products such as Junxure continuing to hold the majority market share. Advisors may not realize it but they make a choice between those two alternatives with every time they chose to replace or renew a key system.”

Where I don’t disagree is that I think that several categories will see dominant winners. Some may be the same providers that sell you products in other categories. But I don’t think it’s a “mega-solution.” Advisors will always want to mix and match, because they look at their businesses uniquely. What they want is seamless work flows, and that’s what will cause them to demand (and ultimately get) the interoperability between vendor platforms.

Bingo! Consumers have been spoiled by the mobile Internet. And they are going to be demanding the same easy access to information—in an intuitive, simple manner—from their advisors.

If your product has an advisor end-client-facing component and it’s not mobile, you probably don’t have a product in two years.