Advent Software is moving ahead in the RIA tech market-- even if most Axys users refuse to budge

In the last few years, San Francisco-based Advent Software has seemed like the aging king of the advisor software business, standing by as companies including Morningstar, Orion and Black Diamond raided its customer base.

[See: Black Diamond is winning accounts from Advent at an impressive clip and Orion is outshining competitors in the eyes of some RIAs]

That impression is accurate to some extent. The company undoubtedly faces more competition, and a tougher environment than it did in the 1990s, when it established itself as the default choice for advisors.

But in a rare media interview, Advent’s president, Peter Hess, outlined the publicly held company’s strategy for continuing dominance in the market. The company has had a strong showing with APX, the web-based software it has marketed heavily for the past two years.

To keep its top spot, publicly held Advent must grow APX, either by converting existing users of its desktop-based software, Axys, or by signing on new clients. It must do so without angering the 3,000 Axys users who still account for the lion’s share of its license holders.

Biggest uphill challenge

“[The concern] is getting existing Advent clients to rethink their relationships with us,” says Peter Hess, Advent president since December of 2008. “That’s our biggest uphill challenge.”

When I raised these issues regarding Axys users with Hess in the interview, he was open to a frank discussion of the topic – and allowed that it’s something that greatly concerns him. Hess, 39, a Princeton University graduate, became Advent president after working his way up the ranks at the company, which he joined in 1994.

“We have so many Axys clients that it would be the wrong move for us” to stop supporting it, he says.

Still, APX, or Advent Portfolio Exchange, is the lynchpin of Advent’s advisor strategy. Axys is limited in how much it can be improved because it uses a flat filesystem to store data. APX stores data on a SQL server instead, which makes it more scalable and easier to integrate with other applications. Advent can also charge significantly more money for the more sophisticated APX product.

When it first rolled out in 2005, APX didn’t produce many sales, because it was priced at $80,000 or more. It was targeted at big RIAs, typically those with $1 billion of more of AUM, that wanted the software hosted in a local environment.

Deal with Fidelity

In 2008, Advent lowered the price and began offering the software over the web. It cut a deal with Fidelity Investments that made the software part of its RIA platform, WealthCentral. Fidelity was able to dangle it in front of prospective breakaway brokers and say that it offered the industry’s leading software as part of a turnkey bundle of software.

Advent wouldn’t quote a price for APX, but said it bases price on the number of accounts for its web-hosted version. Like Axys, APX is priced based on assets under management and seats when used on-site. Pressed for a price range, a spokeswoman says that firms generally pay $15,000 to $200,000 or more for APX.

The result of making APX more accessible to smaller RIAs is that Advent appears to have a pretty hot product on its hands. Advent now has 632 firms using APX – an amount that garners the respect of some industry experts.

“I would say at 600 APX users, Advent is further along moving their clients to it than I would have guessed,” says Jim Starcev, former principal of eTelligent Consulting, who sold his company to Schwab Advisor Services. He also worked as a consultant for several years, helping RIAs install portfolio management systems.

Indeed, consider that Jacksonville, Fla.-based Black Diamond Performance Reporting software – a rising Advent competitor — just announced its 200th customer last week. Orion Advisor Services also has about 200 firms as customers.

Of the advisory firms using APX, 326 of them use the software on-site and 50% of them represent upgrades made by existing Axys customers. The other 306 firms are using APX on a hosted basis and 80% of these advisors are new clients for Advent – including many breakaway brokers.

In short, of the approximately 600 people using APX, more than 400 of them are new to the company.

Side of caution

One way to read those statistics is that although Advent is having success luring breakaway brokers to try its product, it seems content, for now, to allow most of its Axys customers to remain where they are. Or maybe it’s erring on the side of caution as to how hard it markets APX to Axys users.

With these statistics in mind, Advent has to be judged as having mixed success in its early phases with APX, according to Dan Skiles, former head of RIA technology for Schwab Advisor Services and principal with Shareholders Service Group of La Jolla, Calif.

However, one competitor, Michael Wilson, director of marketing for Morningstar Advisor Solutions, said Advent does seem to be pushing clients toward APX. He said he wins clients from Advent because of the tension. About 1,700 firms are using Morningstar Office, and roughly 1,000 advisors are using the desktop platform, Principia CAMS for portfolio management.

Large conversion fee

Advent’s customers have had a love-hate relationship with their mainstay software provider over the years. Customers have griped from time to time about the company’s confusing pricing structure, its high cost and its high extra costs of creating integrations with other applications.

Yet Advent has always been a company that has found ways to grow and succeed. Founded in 1983 by a former RIA, Stephanie DiMarco, the company had established itself as the default choice for most big RIAs by the late 1990s. It had such a monopoly that Schwab felt compelled to acquire and build up Raleigh, N.C.-based Performance Technologies to create a countervailing force in the marketplace – at least for smaller RIAs with $100 million or less of assets under management. [The Schwab subsidiary now handles bigger RIAs using its evolved Schwab Portfolio Center].

But Advent realized that it had lost its focus somewhat in the early 2000s, because its software was geared primarily to mid-level asset managers. It decided it needed to more deliberately address wealth managers and it began development of APX in 2002. It also began developing Geneva, which has been largely successful with hedge fund managers and other big asset managers.

Calm the nerves

But introducing APX to Axys users is a particular challenge because it is an entirely new software package and not just an overhaul or upgrade of the old producer. Trying to calm the nerves of Axys users, Hess is assuring them that Advent has no plans to pull the rug out from under them by discontinuing support for the product.

Kevin Foote: It is expensive but
I was willing to pay a
premium for accounting info.

In fact, Advent is proving its commitment to the product with continuous upgrades – including two of them during the past 18 months. Advent even continues to sell Axys – albeit infrequently – to new users.

These olive branches aside, Starcev says that the days of Advent Axys are almost certainly numbered.

“Eventually they will probably orphan it, but my thought is that is probably best for everyone, mostly,” he says. “I don’t really think this is an Advent issue. I believe desktop software overall will eventually be orphaned — think VHS, 8-track tapes, etc. Right now I would compare desktop software to CD’s — fairly prevalent still, but overall declining and no longer the front runner. My guess is most desktop software will be gone in a decade. How fast it happens for any individual company is anybody’s guess.”

Success of APX

The good news for Advent is that the success of APX [See article: Advent Software got a lift from improving APX sales in the first quarter] seems to be relatively divorced from the way that Axys customers are viewing the company.

This success helps to offset concerns about Axys users who are standing pat with the old technology, according to Hess.

“That’s why I don’t lose sleep at night,” he says. “APX OnDemand is our fastest-growing; it’s one of the stars in our portfolio. But we’d be doing even better if we took more time to communicate the difference between the experience of using APX OnDemand” and the alternatives, including Axys.

Roseanna Torres: It’s a very, very
reliable system and I can pull
a report in a matter of
seconds.

Some former Axys users like Roseanna Torres says that it was a fairly easy decision to choose APX. The head of trading for Pendo LLC of New York City helped choose it for her firm when it was founded in 2007. She and her partners had used Advent Axys at their former firm and felt comfortable about Advent. Pendo manages $50 million of assets.

“It’s a very, very reliable system and I can pull a report in a matter of seconds and know the information is correct,” she says.

Yet it may take much more than communication to begin to get a significant number of Axys users to ante up for APX, Skiles says.

No compelling reason to upgrade

“Advisors are saying: you haven’t given me a compelling reason to upgrade,” he says. “The biggest issue I have is not only the cost to switch but the continuing cost.”

Kevin Foote, senior director advisory services marketing for San Diego-based Girard Securities, says his company used Advent after trying another vendor and finding, for example, that their billing wasn’t as accurate as it needed to be.

Advent’s prices seemed reasonable enough after going through that experience, he says. “It is expensive but I was willing to pay a premium for accounting info.”