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Schwab abandons plan to build multi-custodial portfolio management tool

It looks like more egg on the face for the custodian, which has struggled to maintain a consistent strategy providing adviser technology

Aug 30, 2018 @ 2:43 pm

By Ryan W. Neal

Schwab Advisor Services is getting closer to finally releasing a next-generation portfolio management technology, but it will not be the multi-custodial tool it promised advisers years ago.

The upcoming release of PortfolioConnect will now be a "streamlined platform" built directly into the Schwab custodial platform, according to a blog post by Technology Tools for Today president Joel Bruckenstein. This would eliminate the need for daily custodial downloads, data integrations or reconciliation required by third-party tools, which can consume a large portion of an independent adviser's technology budget.

Mr. Bruckenstein suggested that Schwab is planning a free version of PortfolioConnect for advisers who exclusively custody with Schwab, making for a more efficient and cost effective tool for these firms.

It appears Andrew Salesky, the new senior vice president of digital adviser solutions at Schwab, made the decision to abandon plans to build a multi-custodial technology that would have competed with products like Orion, Tamarac and Black Diamond. After collecting feedback from advisers, Mr. Salesky determined there isn't the demand for a multi-custodial Schwab tool that there was four years ago, according to Mr. Bruckenstein.

"Other than making the product free or nearly free for held-away assets, a costly proposition, it is unlikely that the PortfolioConnect would attract sufficient outside assets to justify the commitment in terms of financial and human capital," Mr. Bruckenstein wrote.

Advisers today want their custodian to support whatever technology they prefer to use. It looks like Schwab will now embrace the open-architecture philosophy already adopted (to varying degrees) by other custodians.

(More: Pershing's API store highlights potential, complexities of open architecture)

"As the advice technology landscape has evolved, Schwab has also evolved to ensure that we are delivering technologies that help advisers put clients first," Rob Farmer, Schwab managing director of corporate communications, said in a statement. "Our strategy centers on providing advisers with choice and value, and allowing them to combine the best of Schwab and third-party capabilities to meet their needs."

Resources previously allocated towards developing proprietary technology can now be devoted to OpenView Gateway, Schwab's open-architecture technology platform. This is a big win for the third-party vendors, many of whom are eager to improve integrations with Schwab platform and offer better service to Schwab advisers.

For Orion Advisor Services CEO Eric Clarke, it means bringing Orion's latest features and capabilities to Schwab advisers, and helping people still using PortfolioCenter, Schwab's desktop portfolio management software, migrate to Orion.

The companies will announce details of the expanded integration next week at the Orion Ascent conference. Schwab will also participate in the event's hack-a-thon to make sure the companies "have all the I's dotted and T's crossed," Mr. Clarke said.

"From our perspective, Schwab's approach of allowing advisers to purchase best-in-breed technology to support their unique niche is really the winning strategy," he said. "Most advisers are independent for a reason, and they like to be able to have the freedom and independence that is the best fit for them."

(More: Is Orion building a financial planning tool?)

But some see the latest shift as more egg on the face for Schwab, which has struggled to maintain a consistent strategy with adviser technology. After acquiring PortfolioCenter (then known as Centerpiece), Schwab announced it wouldn't allow the technology to work with other custodians. Following a backlash, the company reversed the decision.

Advisers later complained that PortfolioCenter was too difficult to customize. The emergence of cloud-based alternatives around 2009 led many advisers to switch tools. Rather than support the third-party technologies, as TD Ameritrade Institutional did, Schwab promised to build its own product that would match the startups on service, but at a reduced price for advisers who keep assets with Schwab.

The product never materialized.

"Yet another stumble by Schwab in trying to tackle the big tech projects on their own," said Tim Welsh, president of consultancy firm Nexus Strategy and a former Schwab employee. "They don't have an API strategy for open-architecture like TDA, and they were trying to build a multi-custodian platform like Fidelity, but are now throwing in the towel. So they don't really have a strategy at all, other than leave it up to the vendors."

Mr. Bruckenstein said it's fair to criticize the firm for not making the pivot earlier, but said Schwab deserves praise for recognizing changing market dynamics and responding to adviser feedback.

And while Schwab may not be delivering on the promise of a multi-custodial platform, Mr. Bruckenstein believes it is making the best decision available.

"What I would say is that it obviously changes the competitive landscape a little bit," Mr. Bruckenstein told InvestmentNews. "It's better late than never."

Doug Fritz, CEO and founder of F2 Strategy, agreed that opening the custodial platform is exactly what Schwab should be doing. Mr. Fritz pointed out that while Schwab is a leader in the digital advice market with Intelligent Portfolios, the firm hasn't made some of that technology, like automated account onboarding, available to custodial clients.

Making this technology available to advisers and improving third-party integration will do more for advisers in the next couple of years than a multi-custodial tool, he said.

"Nobody really [cares] whether Schwab is able to integrate with other custodians," Mr. Fritz said. "No one really expects Schwab to be sexy and awesome and amazing. They just expect them to be low-cost and clear and account for the assets accurately."

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