Two IBDs look at technology differently
Commonwealth Financial Network is licensing its proprietary technology, but Cambridge Investment Research is taking a different tack.
The catchphrase “We can no longer just be a [whatever] company, we have to be a technology company,” is so much of a cliché, it sounds like a punch line from HBO’s “Silicon Valley.” It’s in the same vein as “We’re making the world a better place” or “We’re like Uber, but for [whatever]!”
But there is truth behind the saying. Some argue that every company is now a tech company, and the idea of a “technology industry,” as it existed in the halcyon days of Intel and Hewlett Packard, is an antiquated concept.
So it was interesting to see a leading broker-dealer employ the phrase literally and start offering its proprietary technology as a standalone product.
Just before Valentine’s Day, Commonwealth Financial Network showed just how much it loves its proprietary technology platform, Advisor360, by licensing it out to a competing B-D: Massachusetts Mutual Life Insurance.
While another cliché goes “If you love something, give it away,” this is hardly the way things are traditionally done in the brokerage business. Why spend a half billion developing technology to later spin it into an independent entity and make it available to the competition?
Even more of a head-scratcher is the newly independent Advisor360’s place in the landscape of adviser technology vendors. The company offers a full suite of back-office, adviser-facing and client-facing technology, bringing it into competition with tech startups, custodians and Envestnet, the 800-pound gorilla in the industry. Does an independent broker-dealer really think it can keep pace and win in this market?
(More: Charles Schwab selling PortfolioCenter to Envestnet Tamarac)
The cost of competing is a reason Commonwealth decided to spin off its technology into an independent company, said Darren Tedesco, president of Advisor360. While there was internal concern about giving up one of Commonwealth’s crown jewels in recruiting, the firm realized it needed to drastically increase Advisor360’s user base to bring in the money necessary to keep the platform competitive.
“We’ve got to giddy-up because by 2025, there are only going to be four or five fintechs left standing, and I plan for Advisor360 to be one of them,” Mr. Tedesco said.
For MassMutual, Advisor360 is a leap forward in terms of modernizing its capabilities, according to spokesman Michael McNamara. “It will improve ease of doing business and enable our 9,000 advisers across the U.S. to do what they do best: service their existing clients and grow their practices,” he said in an email.
The money brought in from MassMutual and future contracts with other firms will accelerate development of the platform, which will ultimately benefit Commonwealth advisers. It will also allow the broker-dealer to focus on other parts of its business without being distracted with being a technology company.
But don’t expect Commonwealth to kick off a trend throughout the IBD industry. Few firms have the resources or expertise needed to build a technology competitive enough to sell on the market. For others, it’s probably smarter to focus on partnering with existing tech providers.
That’s the strategy taken by Cambridge Investment Research, another IBD that revealed a new adviser technology platform this month. Instead of building something it can sell, Cambridge is focusing on pulling together third-party technologies, using a customized version of eMoney to tie them together and integrate with Cambridge’s core digital station.
Jeff Vivacqua, Cambridge chief marketing officer, said the firm made an intentional decision not to build its own technology platform.
“We have a process where we are listening to advisers all the time about what is demanded in the field,” Mr. Vivacqua said. Advisers are already using eMoney, he said; they just demanded better integration.
As for whether the firm would ever sell the platform as an independent solution, it just isn’t part of Cambridge’s strategy, Mr. Vivacqua said.
Cambridge CEO Amy Webber added that while firms like United Capital have been successful, it’s a difficult and expensive business proposition. Ms. Webber is skeptical that a broker-dealer can provide enough to differentiate its technology.
“You have to be confident that you can hit the marketplace in a big, differentiated way,” she said. “People far more brilliant than I have said forever that you can’t be all things to all people.”
She would rather focus on providing a flexible, modern tech platform, while focusing more on other competitive advantages, such as Cambridge’s culture and private ownership.
“We’ve never been one to fight in the red ocean, so to speak,” she said. “We are a blue-ocean firm — we go a different direction than anyone else.”
Or as Mr. Vivacqua put it: “We don’t refer to ourselves as a technology firm … we’re a financial solutions firm.”
And that’s OK. First of all, it remains to be seen just how successful Advisor360 will be. Also, consider how Walmart responded to the threat of Amazon. After it acquired e-commerce startup Jet.com, Walmart has rejuvenated sales, with online revenue growing 43% in fourth quarter alone.
It’s true that every firm needs to modernize its practice to avoid disruption. But not every firm has to become a technology company. If tech isn’t already a core competency, there are enough vendors on the market to buy or partner with to remain competitive.
Learn more about reprints and licensing for this article.
