(Updated) Fidelity elevates hybrid offering by giving RIA technology to thousands of IBD reps

Brooke’s Note: The fastest-growing segment of the advisory business is the hybrid RIA, a firm that registers both as a broker and as an advisor. The two Goliaths slugging it out for these advisors are Pershing LLC and Fidelity Investments. Pershing boasts NetX360 and RIA Complete. Fidelity had HybridOne until it phased out the brand. After that, Fidelity’s promise of presenting a more unified platform was looking shaky — until yesterday. Here is the latest chapter in how the competition is shaping up between the two biggest clearing companies.

Fidelity Investments is using WealthCentral to put its brokerage clearing clients on a level playing field with its RIA custody clients for managing fee-based accounts.

IBDs and their representatives using use clearing firm National Financial’s Streetscape will have access to the block trading, reporting and rebalancing technology that is core to WealthCentral. Brokers clearing through National Financial will get access to the new technology over the next three to six months.

Exploding interest from IBD reps

“We think it’s a really big deal,” Rich Hart, the executive vice president and head of programs for National Financial who has overseen the application of WealthCentral to StreetScape.

More than two years ago, Fidelity made another bid to carve a strong niche among hybrid advisors with a package of services it called HybridOne. But it phased out the brand last year. See: Fidelity is bidding its HybridOne brand farewell

“HybridOne was more of a marketing [vehicle] to allow advisors to gain awareness” of the hybrid RIA business model, Hart says.

Pershing is the other major clearing firm that is competing with Fidelity at a clearing level to make IBD reps competitive with RIAs in managing fee-based assets. It has a single platform, Netx360, that serves both its brokerage and RIA custodial clients and it has created a pricing system called RIA Complete that gives reps — and their IBD — incentive to hold assets directly with Pershing Advisor Solutions, the company’s custody unit.

Added October 7: Fidelity made a major leap by adding WealthCentral to Streetscape — though it’s also a “work in progress,” according to Phil Blancato, president of asset management, Ladenburg Thalman [which has about $20 billion of AUA] in New York, whose unit manages about $500 million of assets on behalf of IBD reps. Not only has it eliminated errors but it has made access remote. Formerly Streetscape relied on AdvisorChannel’s desktop software. WealthCentral costs more than AdvisorChannel. “We do have to pay but it’s not a lot of money,” he says.

Indeed, the interest in RIA-like services for IBD reps is exploding, according to Jim Roth, managing director of Pershing. “I’ve met with more advisors [about transitioning to fee-based business] in the last quarter than in my 22 years at Pershing.”

The stakes are high both for retaining and recruiting hybrid advisors. Many wirehouse brokers will only leave Wall Street employment if they can continue to do some commission sales.

What Fidelity is doing

“The entire suite of tools integrated into Streetscape can help strengthen the ability of our clients to recruit and retain advisors and brokers by allowing them to more effectively manage their clients’ commission- and fee-based accounts,” said Sanjiv Mirchandani, president, National Financial, in a release.

Currently many IBD reps that clear through National Financial run fee-based business through outsourcer Envestnet’s platform. Envestnet is a TAMP that offers bundled solutions, manager research and access to an extensive set of separate account managers.

Other IBD reps use AdvisorChannel, Fidelity’s legacy RIA platform, as part of Streetscape. AdvisorChannel is still the prevalent platform for Fidelity RIAs. See: Fidelity wins converts to WealthCentral, but most of its advisors have yet to make the switch

WealthCentral was introduced to RIAs two years ago as a head-and-shoulders-better successor technology to AdvisorChannel. RIAs who use WealthCentral have the option of using additional applications provided by Advent Software, EISI, Northfield and Oracle. Soon Black Diamond will also be an option. See: Fidelity Institutional and Black Diamond tie the knot through WealthCentral

State Street talent

For now, National Financial’s IBD reps won’t be able to access WealthCentral’s outside software vendors. The addition of this aspect of WealthCentral on behalf of IBDs is still in the works, according to Hart. Fidelity hired him 18 months ago after serving as the chief operating officer of State Street Global markets. He was responsible for global operations for equity trading.

Alois Pirker: Do you want to
manage it yourself?

But IBD reps at hundreds of different broker-dealers will be able to track and rebalance model portfolios without having to outsource the task – or use the outmoded AdvisorChannel technology. Already 50 IBDs that use Streetscape have deployed the WealthCentral-based technology and 350 users – including reps and their assistants – have access to it.

“It’s really about choice and different business models. Some advisors want their own program (rather than outsourcing),” Hart says.

With WealthCentral’s technology embedded, Streetscape may well be more appealing than Envestnet for some RIAs.

“Do you want to manage it yourself or hire Envestnet to do it?” asks Alois Pirker, research director for Aite Group of Boston. “Envestnet gives you the operations but they’re not a custodian. You also pay for [the technology of ] Envestnet versus it being free on Streetscape.”

Envestnet ubiquitous

The Chicago-based Envestnet, however, has recently acquired an outsourced version of Schwab PortfolioCenter, and will offer more unbundled solutions. Envestnet should not be underestimated, according to a Morgan Stanley report. Morgan Stanley report: Big deals will propel Envestnet’s growth much faster than investors realize

Matt McGinness: When IBD reps reach
$25 to $50 million of AUM,
the rebalancing task can become 'crushing’
without the right technology.

For pure RIAs or hybrids, or IBDs with any kind of fee-based business, technology that allows sophisticated fee-based management of assets is critical. There are many advisors who reach $25 million to $50 million of assets and the burden of handling rebalancing “collapses on you” unless the right systems are in place, according to Matthew McGinness, managing director advisory consulting services at First Allied securities of San Diego.

The difference between good and bad technology can be stark and the implementation of “one-click” rebalancing is key, McGinness adds. Lesser system can allow for portfolios of different clients to end up holding different securities and this can radically increase the workload. In that instance, each portfolio needs then to be managed separately.

Many smaller broker-dealers don’t have the scale to build in sophisticated rebalancing capabilities and having it happen at the clearing firm level is valuable. First Allied is working to build its own fee-based management technology in-house, he adds.

For Pershing’s part, it is taking a two-pronged approach to creating a haven for hybrid advisors, according to Suresh Kumar, chief information officer of the Jersey city, N.J.-based clearing giant.

Suresh Kumar: You can do it
all on one platform.

One-platform Pershing

“We used to have NetXPro, NetXAdvisor and Pershing Managed Accounts and with NetX360, you can do it all on one platform.” There are 100,000 users of NetX360 including both RIAs who work through Pershing Advisor Solutions and IBD reps who trade through Pershing’s clearing platform.

But Pershing is also offering IBD reps direct access to its RIA platform, Pershing Advisosr Solutions through its RIA Complete program.

It has 4,000 IBD reps working through 55 independent broker dealers who are already using this service.