Brooke’s Note: When I was a technology reporter in the late 1990’s covering software companies in the Baltimore area, there was a lot of talk about vaporware — a word coined to describe software that was in the planning stages but not yet actually created. In the heady days of the tech boom, fierce competition forced companies’ hands in promoting in-progress technology. But trying to track the progress of Manugistics’ supply chain software was child’s play compared to comparing RIA custodial technological ecosystems. Still, a talk at IMPACT with Schwab’s vice president for advisor technology solutions, Neesha Hathi, gave me a far greater understanding of such systems, Schwab’s overall strategy, and its progress compared with other major custodians.

When we first heard of Schwab Advisor Services efforts to create a grand ecosystem of technology back in April of 2010, it was enigmatically called “Project C.” Several months — and syllables — later, it was renamed Schwab Intelligent Integration. See: Schwab’s Project C now has two tiers and three new names.

Schwab lags behind competitors like Pershing, TD Ameritrade and especially Fidelity in its efforts to weave third-party vendors into its system — but not in its ambitions.

“Schwab Intelligent Integration is one of the company’s biggest initiatives, and we are committed and dedicated to this integrated technology strategy and to serving you,” says Bernie Clark, head of Schwab Advisor Services in a releaase. “This will change the way business is done now and in the future.” See: Schwab unveils a plan to create a grand ecosystem of top technology vendors to RIAs.

Thus far, Schwab has only integrated SalesForce, the big CRM provider, into its turnkey solution. It has also integrated Junxure on a non-turnkey basis and RIABiz did a demo to confirm this. See: Beta test of Schwab’s grand integration plan draws rave, but will the slow rollout prove detrimental?. The basic advantage of these integrations thus far is that information formerly visible only in the portfolio management system now bubbles to the surface of the CRM page.

Four more years?

When I sat down with Neesha Hathi, vice president for advisor technology solutions and head of the San Francisco-based RIA custodian’s technology project, my goal was to gauge Schwab’s progress as the integration project approaches the two-year mark. Industry-watchers had looked to Schwab’s recent IMPACT conference for an announcement of a watershed moment for Schwab Intelligent Integration, but the company did not tip its hand all that much. See: Schwab chooses some giant software partners, apparently with big RIAs in mind.

Indeed, when I spoke with Joel Bruckenstein, producer of the T3 conferences, in preparation for this interview, he said the project could take four years to really begin to take shape.

When asked about this, Hathi demurred, but not strenuously.

Bernie Clark: This will change the way business is done.
Bernie Clark: This will change the
way business is done.

“We do always think of it as a multi-year initiative. I don’t know if I’d say four [years].”

Hathi says the reason that Schwab is moving at such a deliberate pace relates to where it sits in the marketplace — already in control of the accounts of 7,000 advisors with about $700 billion of assets. This means its focus is on creating a better integration experience for advisors who have largely already picked their technology provider, as opposed to tabula rasa breakaway brokers prepared to plug and play into an all-new system.

“If we were just going after that market, we’d say the turnkey solution is all we need, but we have 7,000 existing advisors we want to serve [them] better,” Hathi says.

First, do no harm

She went on to explain that integrating technology is a little like replacing organs in the human body (my metaphor, not hers) — if done improperly the organ can be rejected. She says that screens can be “messed up” if integration happens willy-nilly. “We call it the 'do-no-harm’ principle.”

Edward O’Brien, who oversees technology for Fidelity Institutional Wealth Services, says that his company’s turnkey solution, encompassing Advent/Black Diamond, Siebel and NaviPlan, is used also by existing advisors. He declined to specify how many but says more than 700 third-party packages have been executed by all advisors.

Fidelity is now also working to integrate Envestnet Vantage Performance Reporting, Morningstar Office, Redtail Technology, SalesForce and AppCrown, LLC.

Jon Patullo: It's more than just an API.  It's a key enabler for pretty deep integration.
Jon Patullo: It’s more than just
an API. It’s a key
enabler for pretty deep integration.

Which way forward?

Schwab has eschewed an approach much like TD Ameritrade’s API system, in which the company reveals its technology code to third-party vendors and allows them to integrate from the other direction.

Hathi agrees that this is a shortcut but ultimately not one that she believes accomplishes the goals of Schwab or its clients.

“An API is easy. We could have put that out there and said: 'Go ahead market, build to it.’”

But Jon Patullo, who is overseeing the API integration effort at TD Ameritrade, says that his company’s approach is more complex and collaborative than Hathi makes it out to be.

“It’s more than just an API. It’s a key enabler for pretty deep integration. The validation is from advisors, industry experts and third-party vendors.”

TD Ameritrade now has seven vendors in “production” including: Orion Advisor Services, LLC, Salesforce, EbixCRM, Redtail, eMoney, MoneyGuidePro and Morningstar Office. There are 14 vendors who “developed to it,” says Patullo, and 40 more vendors in some form of discussion or review with TD.

Freedom of choice

John Philpott, CEO of Interactive Advisory Software of Atlanta, believes that all the custodians are way behind in creating integration. “I’d say we have a significant head start. We didn’t say: 'We’re going to pick CRM and build it around CRM.’ We built our system around the client.”

John Philpott: We didn't say: We're going to pick CRM and build it around CRM. We built our system around the client.
John Philpott: We didn’t say: We’re
going to pick CRM and build
it around CRM. We built our
system around the client.

The flaw Philpott sees with all the custodians is that they’re still trying to integrate between firms that have separate databases. IAS uses a single database for all its apps. Of course that means that advisors can’t use their vendors of choice, but he believes that advisors have sufficient flexibility. “I don’t think it necessarily limits your choice.”

Tamarac is another company that is pursuing its own in-house ecosystem of technology.

Hodgepodge of protocols?

Hathi says Schwab is taking extra care not to allow things to go haywire in the integration process.

“The one paying the price is the advisor who says: 'This didn’t map.’ There’s difficulty trying to control for that…We said: 'Let’s not have 12 CRMs but make sure their definitions are the same.’...We’re going to validate and make sure nothing breaks.”

One example Hathi gives is that many financial advisors differ in the way that they list the address information of clients, for instance some might list summer homes while others don’t. Without careful integration, such a hodgepodge of protocols can throw technology into disarray, she says.

Two other factors that have slowed Schwab’s progress are its determination to study RIA workflow and build to it and also its decision not to put its own technology at the center of the universe that it is creating.

“It would be much simpler to say: 'Let’s make Schwab Advisor Center the center of the universe,’” Hathi says.

Neesha Hathi: An API is easy. We could have put that out there and said: 'Go ahead market, build to it.'
Neesha Hathi: An API is easy.
We could have put that out
there and said: 'Go ahead market,
build to it.’

CRM centrality

Schwab’s thinking is that most advisors live all day on their CRM and tend to have significant assets held at other custodians. CRM centrality makes it easier to view those. “If we built it around a portfolio management system, we could do that,” Hathi says.

Patullo says that TD also puts CRM at the center, but that it is also making it possible for advisors to put its tech platform, Veo, at the center, if that’s what they prefer. See: TD Ameritrade’s technology, Veo, wins high praise from advisors so RIABiz took a look.

“I’m sure traders don’t use CRM that often. They may want to see what needs to be rebalanced.”

Tech comfort food

Schwab has not named any portfolio management systems, although Schwab PortfolioCenter will certainly be one offering. Hathi says that RIAs can expect to hear about Schwab’s selections for portfolio management systems in coming months.

The one vendor that Schwab named at IMPACT was Salentica, a Toronto-based CRM provider that is favored by many of its larger RIA clients. It has created a customized version of Microsoft.

“A lot of people like Microsoft because it is familiar,” Hathi says.

Salentica provides advisors with a customized version of Microsoft Dynamics CRM and is the first Microsoft ISV to participate in the Schwab OpenView Gateway. The integration will benefit those advisors who purchase Salentica Advisor Desk for use in the advisor’s office or on a hosted platform. Salentica will also begin developing an integration plug-in for firms that have purchased Microsoft Dynamics CRM 2011 directly from Microsoft, again as either a desktop or hosted solution.

“What’s really exciting about this relationship with Salentica is that it will allow advisors who choose to work with Salentica and those who prefer to work directly with Microsoft to reap the benefits of integration with Schwab’s custody data,” says Hathi in a release.