David Loeper is taking on UBS but his patent lawsuit is raising alarms in the RIA business

A technology company in Richmond, Va. is bringing suit against UBS – and in the process is setting off alarms across the financial planning community.

Wealthcare Capital Management, owned by Financeware Inc., is alleging that the smallest wirehouse – enabled by MoneyGuidePro (owned by PIEtech Inc) – has heisted its financial planning process as covered by two patents filed in 2001.

Wealthcare received approval of the second patent last Tuesday after having the first one approved in 2010.

“As the developers of MoneyGuidePro, PIEtech Inc. vehemently denies any infringement,” writes PIEtech’s CEO Bob Curtis in a note distributed to clients. “We will aggressively defend ourselves and our customer, UBS, from these baseless claims.”

UBS did not respond to two requests for comment.

30,000 paying advisors

Wealthcare’s planning process is currently used by 30,000 financial advisors, including brokers at Merrill Lynch and Morgan Stanley Smith Barney. The technology is best known as the basis of Wells Fargo’s Envision Process financial planning program.

Though the lawsuit – brought by a top-flight intellectual law firm, Kenyon & Kenyon – targets a New York-based wirehouse, it is the leaders of the financial planning community who are expressing the greatest concerns.

“I think it’s a much bigger deal than the UBS thing,” says Joel Bruckenstein, technology columnist and producer of the T3 advisory conferences. “I think there’s a risk to all financial planners…[that] if anyone does a plan then [chairman and CEO of Financeware] Dave Loeper is going to get a royalty.” See: Why exactly Dave Loeper and a Smith Barney/E.F Hutton legend are teaming up.

Joel Bruckenstein: I think there’s a
risk to all financial planners….[that] if
anyone does a plan then Dave
Loeper is going to get a
royalty.

“The outcome of the Wealthcare vs. UBS patent infringement litigation may have significant ramifications for financial planners everywhere,” says Ron Rhoades, assistant professor at Alfred State College and director of research at Joseph Capital Management, LLC says in a column for RIABiz. See: Legal analysis: The chances that Wealthcare beats UBS or upends the financial planning community.

Dan Barry, managing director, government relations & public policy for the Financial Planning Association says he has concerns.

“This caught our attention. At first glance the idea of patenting a process for providing financial advice is going to raise red flags for financial planners. We’re going to be following this and taking a look at the specifics to see if there are any implications for planners and their practices.”

Crossing the line

For his part, Loeper says that his suit is specific to companies that use his process and that he believes that UBS has been violating his patent for about a year.

“We’re not looking to sue everyone who does financial planning,” he says.

Yet Loeper adds that his concerns could go beyond UBS advisors. “If advisors are using our process, they need to make sure they have the appropriate rights to it.”

When asked if Wealthcare might seek damages from parties other than UBS, Mark Hannemann, a partner at Kenyon & Kenyon who is handling the case, echoed that sentiment.

“People ought to look at what they’re doing [with regard to financial planning] and look at the patent and see what side of the line they’re on,” he says.

The firm has 170 lawyers in Washington, D.C., New York and San Jose, Calif.

Just how unique?

Loeper defines Wealthcare’s process as one where the advisor identifies both a client’s ideal goal and their acceptable goals both in dollar terms and in timing. He says his process determines and then prioritizes among these goals. “That was not done before,” he says. Before allegedly inventing this financial planning process, Loeper says that advisors merely asked at what age the client wanted to retire.

Next, the process involves using Monte Carlo – a type of randomized algorithm – to establish a confidence level in exceeding established goals. Finally, the process crafts a recommendation based on the confidence level.

In addition to copyright infringement, Loeper feels he is protecting his paying clients by making sure that Wealthcare’s competitors don’t get for free what the firm’s clients are being charged for. Wealthcare charges individual advisors about 35 basis points for an outsourced technology service that includes CRM, rebalancing software and performance reporting, in addition to financial planning.

“There are very unethical people out there that will use [intellectual property] without someone’s permission,” he says

Clashing claims

Bruckenstein is skeptical about Loeper’s claim. “My opinion is that at one time he had a lead in this field because he had Monte Carlo. To me he lost his lead and he’s trying to make it up with a lawsuit.”

Hannemann begs to differ, saying Wealthcare has a clear-cut case. “The Supreme Court has weighed in [on the side of] method patents in the last few years.”

He adds that the Wealthcare patent has another factor to recommend its enforceability. “One [of the two Wealthcare patents] was issued [only] a few days ago so the patent office has had a long look.”

Loeper says Kenyon & Kenyon wouldn’t go forward with the lawsuit if Wealthcare if didn’t have a legitimate claim and neither would he. The loser can be held liable for the winner’s court costs. Loeper adds that his company, founded in 1999 and with a staff of 38 employees, has sufficient resources to weather a prolonged lawsuit. The company has previously raised $17 million of venture capital.

Curtis, CEO of PIETech, sees matters differently.

“I have spoken to many in the industry who feel these patents should never have been issued. Personally, I am outraged that anyone would attempt to patent the core tenets of the financial planning process,” he writes in a letter to his clients. “This is not just a threat to MoneyGuidePro, but to our entire industry. No one should own the financial planning process and try to charge a tariff for its use. Now, more than ever, we need to encourage innovation in the software that facilitates your ability to deliver professional advice to your clients,”

The giant of financial planning, EISI of Winnipeg, declined to comment for this article through Denis Martineau senior vice president, business development. See: Review: EISI is producing a simpler NaviPlan in an effort to keep its towering market share.

Loeper maintains his patent is more specific than Curtis implies.

“We cannot hold anyone over a barrel if they’re not following our process. There are plenty of systems out there not using our process.”

Editor’s note: EISI’s response was added after publication.