Charles Schwab dropped a plan for multicustodial platform for its portfolio management offering, PortfolioConnect, and announced it would increase its investment in building third-party integrations.
Chief to benefit from the decision are Schwab advisors, who will ultimately gain more technology choices through a strengthened application programming interface infrastructure. It also opens up new growth opportunities for competing software providers jockeying for space on the advisor’s desktop.
The decision acknowledges that with the increased popularity of open architecture systems, fewer advisors are operating their practices solely based on proprietary tech from a custodian.
“We definitely recognize as the business has grown, the ecosystem of vendors supporting advisors has grown as well, creating a wealth of options available to advisors,” says Andrew Salesky, senior vice president of Schwab’s Digital Advisor Solutions.
A free version of PortfolioConnect will still be available as part of its core custodial platform, which will continue to add refinements for digital account openings, money movement and account reporting.
Salesky says the platform’s future development will focus on reducing the need for manual transactions even more. “There’s still a large portion of paper that is burdening an advisor’s back office,” he says. “There is still an opportunity to digitize those experiences.”
Schwab will continue to consult advisors seeking advice on third-party tech. While the custodian says it won’t favor one third-party over another, Salesky notes it will deepen existing integrations with some firms. Currently Schwab has 50 integrations with third-party tech providers.
“The expanding options could require greater due diligence,” Salesky says. “More choice is a good thing; it can fit different models within an advisor’s back office. We’re eager to help our clients navigate that landscape, and determine what the best option for them is.”
Though the custodian had long planned to release a multicustodial platform, the shift is a reflection of how quickly the industry has adapted to new tech options, says Joel Bruckenstein, founder of the Technology Tools for Today conference.
“It is an acknowledgment that other custodians are more open, and are benefiting from that openness,” he says. “Schwab says they were hearing from a lot of advisors, they wanted these third party integrations… You have to be there when the client needs it. If you need portfolio management software, and Schwab says they’ll have a solution for you in two years, that’s not going to cut it, I need a solution today.”
Among the components in an advisor’s practice, Bruckenstein adds, portfolio management software is one that sees the least amount of change once it is integrated, partly because of the amount of data that is involved to populate the system. “The average tenure of portfolio management software is longer than CRM and financial planning software,” he says.
Third-party vendors will be highly incentivized to work with Schwab, as the Schwab Advisor Center has more market penetration than any other custodial platform, says Jackson Arnold, research associate at Corporate Insight.
“So long as Schwab does a good job listening to its advisors and actively works towards deep integration with the most sought-after tech solutions, we think that Schwab advisors will respond positively,” Arnold says.
Schwab is smart to focus on streamlining and third-party integration, he adds. “With so many tech offerings and strong niche products available, it’s impossible to meet the technology standards of your advisor workforce with proprietary technology alone.”
Advisor tech vendors welcomed the news.
“We have a great relationship with Schwab, TD Ameritrade, Fidelity, Pershing and other custodians as an integration partner, and are pleased to hear that they are going to be investing even more into their integration efforts," said a spokesperson for Envestnet | Tamarac.
Orion Advisor Services CEO Eric Clarke expects as a result of Schwab's decision, his firm will look to add another 100 advisory firms as clients over the next nine months.
"It's a big win for advisors," Clarke says. "It really gives independent advisors the differentiation they need to be successful in a niche. They can integrate technology specific to client needs as opposed to an offering off the shelf in a black box."
Clarke complimented Schwab for deciding to invest in API relationships and move away from its original plan for a multicustodial platform.
"It takes a lot of courage in the boardroom to shift strategy direction and make investments in alignment with what the independent RIA wants,"Clarke says. "It's a lot easier to say, 'Here's a black box, here's what we want you to use."
