Postscript: What exactly should we make of the T3 phenomenon?

True, software vendors themselves may be more enthused than advisors, but the conflagration of information-sharing ventures on RIAs' behalf is no footnote

Thursday 2.14.13 by Brooke Southall

Brooke’s Note: I’m pretty unabashed about praising cool things that crop up in the RIA business — whether or not they fit anybody’s idea of purity. T3 is one of those things. Who would have thought five years ago that you could get virtually every key tech company related to RIAs all in one place and pretty much bringing their A games to the event? I like it. One last-minute anecdote I heard was from Frederick Van Den Abbeel of TradePMR Inc. that announced touch-screen trading applications called Fusion. “After we made the announcement and general session, we had about seven Fidelity staff come over to our booth wanting to know how we did it,” he says. Maybe it was eight, five or three, but you get the point.

RIAs — and their proxies in the form of asset custodians — are funneling about $1.3 billion into RIA technology every year, according to an estimate made by Nexus Strategy LLC principal Tim Welsh (granted, gamely on the back of an envelope; but seriously, nobody’s come up with anything better).

The ad hoc calculus goes like this: There are about $2 trillion of total managed assets by RIAs, and these firms on average charge fees of about 1%. That means RIAs have gross combined revenue of about $20 billion. A rule of thumb for how much advisors spend —- or should spend — on technology is 5% of revenue, which equals $1 billion. It’s then estimated that in aggregate, asset custodians may spend and invest another $100 million to $200 million that accrues to RIAs’ benefit. This leads to the loose calculation that as much as $1.3 billion pours into RIA technology annually. Of course, it can be much more than 5% of revenue for a startup: See: How I picked technology — from Black Diamond-in-SSG to Dudamobile — to use in my startup RIA.

Apparently, this amount is sufficient to result in the mustering of the RIA technology troops to the tune of the Technology Tools for Today conference that went down this week in Miami. See: T3 goes big in Miami but Fidelity steals the show with avatar advisors and smart coffee tables.

Where Chihuahuas cavort with Rottweilers

Not only did it boast a lengthy and diverse list of attendees but it also included the kinds of attendees that don’t necessarily love to rub shoulders — such as Fidelity Institutional Wealth Services, Schwab Advisor Services, LPL Financial, TD Ameritrade and Pershing Advisor Solutions LLC. What resulted was something like the Mill Valley, Calif., dog park — where Great Danes sniff Chihuahuas and Rottweilers cavort with poodles, almost satirically oblivious to the superficial differences in their appearance.

By this, I mean you had a Salesforce presence on the one end and a Total Rebalance Expert or HiddenLevers on the other. (Speaking of Salesforce, I heard that the San Francisco company is well and truly ready to engage with the RIA world and may even deign to speak to some of its reporters, ahem. To date when we have written about Salesforce we have reached a big New York-based PR agency known for spinning things like oil spills and the like. and then they decline comment. Franklin Tsung of AppCrown, LLC has ably filled in.)

Junxure chief Greg Friedman declared his efforts on YourSilverBullet, the tech vendor grapevine, obsolete.
Junxure chief Greg Friedman declared his
efforts on YourSilverBullet, the tech vendor
grapevine, obsolete.

But getting back to the conference, you had Fidelity flexing big special-effects muscle and Schwab playing it much lower key but sending in Brian Shenson to show strong support. Schwab’s superstar, Neesha Hathi, was waylaid by flu, but the company held a press event that RIABiz participated in to get this interesting story.

A bigger pie

Welsh says that massive participation in T3 among vendors has reached a critical but little-discussed mass that amounts to the power of conspicuous absence.

“If you’re not there, people say: Why isn’t so and so there. It’s the missing-persons effect,” he says. “People wonder about your viability. Advisors know that if a firm doesn’t succeed, then they need to start over again.”

This seems to indicate two things: (1) the pie is pretty big, and (2) the pie is getting bigger.

The assets meandering to the RIA side as Wall Street continues to self-immolate are not in vaults. Those assets are, in essence, held and advised upon electronically by use of technology. Whereas every Merrill Lynch advisor basically shares one big system, each advisory firm tends to come up with its own.

Not only is basic portfolio-accounting software demanded but, increasingly, a world of customer relationship management software for sales; rebalancing and trading software for labor savings; and financial planning software to add value. New software categories are being invented all the time relating to analytics, account aggregation and risk analysis — vying to do things more and better for advisors. Blueleaf and Riskalyze are two companies that just came to our attention. See: How Blueleaf sees itself taming the RIA’s two betes noire — and how it is being challenged on that.

The clustering gene

If, as the Nexus Strategy estimates suggest, revenue is roughly tied to RIA asset growth, then software sales are tied to a rich area of growth — aside from the growth created by a greater variety of services.

I also happen to believe that there is a clustering gene that attaches itself to the one that makes software code interesting and knowable to tech geeks. I don’t think it’s a coincidence that technologists — like limpets on rocks — are found in such proximity in places like Silicon Valley, Waltham, Mass., or North Carolina’s Research Triangle. As small companies, incubators house geek startups like jail-range chickens. See: Top 12 crucial technology happenings affecting RIAs in 2012, Part 2.

My one fear for T3 is that it might lose its dog-park quirkiness. Could the Salesforces and TD Ameritrades pay-for-play their way to total dominance of the event to the suppression of the small and bleeding-edge crowd? Could the big guys decide that the event is too mom-and-pop for their tastes — robbing it of some of its wow factor? Could Joel Bruckenstein start booking the kinds of A-level conference venues that jack up everyone’s cost and make us forget that the RIA business is still, in essence, an aspirational business and not a laurel-resting one? (For now it appears that we’re safe on the latter concern. The Anaheim Hilton. booked for T3 2014, is an aging matriarch from all reports. See: What Messrs. Bruckenstein, Drucker and Veres cooked up in a Chicago airport hotel. (Incidentally, I attended the T3 conference in San Diego a few years ago at a swanky LaJolla venue. Bruckenstein told me not to get used to it, as he had managed to book it at a rock-bottom price during the 2008-09 mini-Depression.)

Advisors gravy?

The biggest knock on T3 is that it doesn’t attract advisors as effectively as it attracts vendors. But certainly I’ve heard people also say that, still and all, they come away with nice little prospect lists from the event. I happened to speak to David Miller, founder of PortfolioPathway, when he was at T3 this year, and he said he was happy with the number of prospects he met. People also say that having any advisors there can be viewed as gravy, because it is a worthy B-to-B event unto itself.

One sign that this is true is the recent dissolution of YourSilverBullet by Greg Friedman. It was originally formed to get isolated RIA technology vendors to talk to each other. But now that technology socialization is spreading like Linkedin endorsements, he’s declaring his efforts obsolete. He’s a little busy, too, running an RIA and Junxure, perhaps the biggest CRM competitor to Salesforce. See: Greg Friedman is set to finally bring Junxure to the cloud and beat back the Salesforce-ification of the industry.

(A previous version of this article was off a decimal point in the calculation made in the first few paragraphs, a mistake we were saved from by the graces of an alert Morningstar employee, Kartik, who commented below.)

Tim Welsh | Franklin Tsung | Brian Shenson | Neesha Hathi | David Miller | David Miller | Greg Friedman

T3 | TradePMR | Salesforce | Schwab Advisor Services | LPL | Pershing | TD Ameritrade | Appcrown | PortfolioPathway | Frederick Van Den Abbeel