Similar to how quickly many consumers now upgrade to a new phone — often within just a few years — vendor relationships are getting shorter as more advanced technology enters the market.
"I would prefer the shortest agreement that I could possibly get, so that's usually our first negotiation — the terms and the length of the terms," said Joe McQuaid, managing director at Concurrent, an RIA platform based in Tampa, Florida. "I very rarely get it to a one-year [contract], but I very rarely agree to three. … Three years is a long time."
McQuaid's sentiments were echoed by many others at wealth management firms who said their preference is to have vendor contracts at two years or less, mainly because of how quickly technology is moving into advanced machine learning, AI and open data models.
"I've seen five-year and seven-year proposals, which I think is absolutely nuts for a wealth management firm of whatever size to consider because technology is evolving so rapidly," said
Mackowiak said the new smaller technology providers are also more likely to be acquired by larger organizations, which means the contracts will roll over with the new owner.
"So you're then maybe stuck with a vendor that is no longer the vendor that you bought into, and you've got three, four, five years left on an agreement," he said.
That fear of getting stuck with old technology or a different vendor than initially chosen is a massive driver for why contracts are running shorter.
"The fintech world is now open where you're going to be changing a lot," McQuaid said. "With data management and data lakes and AI, I think it's going to make it a lot easier for us to pick up and move to the new version of something because the features are just superior to what you're using."
However, McQuaid said that there are some relationships that firms shouldn't want to change every year. For example, if the vendor is providing a core platform that's deeply embedded in the firm already.
"I do agree that contract terms are getting shorter, but integrations can be quite complex," said Natalie Wolfsen, CEO of Orion Advisor Solutions, a large wealth technology platform based in Omaha, Nebraska.
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Wolfsen said when it comes to more complex integrations, those take time, so it's worth having a longer-term relationship.
"It's up to us, as the technology provider, to make sure that our solutions are adding enough value that they want to stay," she said.
That's part of the reason why wealthtech platform Envestnet has partnered with Fidelity Investments for 20 years. The Boston-based investment powerhouse said June 13 that it is working with Envestnet to launch a fully integrated Fidelity Managed Account Xchange (FMAX) platform that will allow users to access other services, like its tax management for model portfolios and high net worth solutions.
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But maintaining a decades' long relationship while also keeping up with technology as new entrants have entered the market is no easy feat.
"If you look back over the last four or five years, there's been a lot of new firms that have come on, made a big splash, it looks good, the experience is nice. But when you're talking about the investment world … there's so much operational plumbing and piping to make this work," said Andrew Stavaridis, Envestnet's chief relationship officer and group head of wealth solutions.
The plumbing aspect that Stavaridis referred to is a platform that can help a firm perform account openings, trade data files, compliance oversight, meet investment policies — the operational functions while staying compliant with regulations.
"The things behind the scenes is what's made that 20-year relationship work, and how we invested in the platform that continues to evolve," he said. "There have been times over the last 10 years where we've been behind a little bit. … But we've caught up. And a lot of the new things that we're delivering to the marketplace are very unique."
Adrian Johnstone, CEO of Practifi, a CRM platform for RIAs, said firms "need to pick a partner, not a provider" if they want a vendor relationship to last more than a few years.
"Make sure that you're choosing technology that suits your business three years from now," he said. "Because if you make the commitment to enter into the agreement, and you take the effort to implement the technology, you don't want to be turning it over in less time."
