Envestnet | Tamarac’s purchase of Charles Schwab’s PortfolioCenter, the portfolio management and reporting application used by thousands of advisors with roots going back 30 years, is needling wealthtech rivals. It is being sold to Envestnet along with PortfolioCenter Hosted and PortfolioServices for an undisclosed amount.
As it has long been used under license as a core component within the Tamarac platform, many in the industry view the move as a win-win, suggesting that the resources Envestnet plows back into developing its technology will be good for the venerable, if at times cursed, application it is purchasing. Competitors to Envestnet | Tamarac in the portfolio accounting, management and reporting space see an opportunity.
Orion Advisor Services is trying to entice advisors to its portfolio management solution, including its trading platform, Eclipse, with an offer of nine months of free access to the tool. Meanwhile, Morningstar’s head of software products cast doubt on the independence of PortfolioCenter and openly worried that advisors face a crisis of choice when it comes to software providers, in a blog post on the company’s site.
Since Schwab’s announcement, we’ve been fielding dozens of calls from advisors who are worried about an emerging threat to their independence. With large asset managers providing "free" technology solutions to advisors, and large software providers combining forces, it’s easy to fear that choice— the cornerstone of independence—is dwindling. This is compounded by concerns over practical considerations like the difficulty and costs of migrating data.
—Dermot O'Mahony, head of software products at Morningstar
While Envestnet’s rivals may be circling the transaction, hoping for new clients, advisors currently using PortfolioCenter don’t seem to be budging. They’re confident Envestnet will continue to support the offering, especially given the relationship between Tamarac and PortfolioCenter, which dates back to 2009. In fact, some advisors using the tool, first launched in 2004, say the only way they’d jump ship and learn a new system is if Envestnet starts tinkering too much with the tool.
“That’s the one thing that would make people change,” said Michael Stark, founder and principal of American Financial Advisors, LLC, based in Marietta, Ga. “If it looks like there's too much different, then it's kind of like, ‘Well shoot, let's go out and find who is the best.’”
“I know Tamarac has a good rep, though, so that’s why I’m not too worried about it,” Stark added. American Financial Advisors uses PortfolioCenter for portfolio management and doesn’t have a dedicated software for rebalancing, he said. The firm, which has $645 million in total assets under management, according to its most recent regulatory filings, uses Morningstar Office, as well.
Other advisors share Stark’s enthusiasm for the acquisition and are hopeful the new ownership will be a better steward of the software. “The firm’s view of the acquisition is a positive. I don’t think Schwab had really invested a lot in continuing to upgrade PortfolioCenter,” said Tom Weary, chief investment officer at Lau Associates, an independently operated subsidiary of Bryn Mawr Bank Corporation in Greenville, Del. “Maybe the product will get some bells and whistles and be upgraded.”
If Envestnet did decide to drop support for PortfolioCenter, Weary said he’d see it as an opportunity to upgrade to Tamarac, which he called “the gold standard in investment reporting.” Lau Associates has $637 million in total AUM, with the vast majority of those assets held by high-net-worth clients, according to the firm’s most recent regulatory filings.
But just because advisors don’t seem to be likely to leave PortfolioCenter because of the transaction, Orion isn’t wasting the opportunity to make a case for its services. “We’re hearing from advisors that they simply aren’t receiving the level of support they expect from their tech provider, but how could they when in some cases they are one of 100,000 and working with a company trying to integrate over a dozen acquisitions?” said CEO Eric Clarke. His firm’s offer of nine months of free access to its portfolio management tool comes with “no cost” for conversion, onboarding, training and support—even though those services aren’t normally charged for anyway, according to a company spokesperson.
Besides nine months of free software access, the real savings for an advisor come down to a few hundred dollars per person, in the form of a free ticket to Orion’s road show. And while the vendor has “converted hundreds of advisors from PortfolioCenter over the years,” according to a company spokesperson, neither Stark nor Weary was considering a switch to Orion.
At SS&C Advent, which owns portfolio management system Black Diamond, a salesperson wrote in a social media post that a registered investment advisor making a tech decision based on an acquisition, rather than doing what was best for the firm, was a bad idea. SS&C Technologies purchased Black Diamond’s parent company, Advent Software Inc., in a multibillion-dollar deal in 2015.
Advisors who are considering a move to a new vendor, because of fears of dropped or weakened support, concerns about the rate of innovation under new ownership or simply because now is a convenient time to make a move, may want to consider an innovative approach to holding their new vendor’s feet to the fire, said Doug Fritz, founder and CEO of F2 Strategy. He advises that wealth management firms protect themselves against vendor changes by using the contracts they negotiate and sign with their vendors.
“When entering into a software agreement, I like to step back from the process and ask, ‘What could go wrong?’ or ‘What would make me unhappy down the road?’” Fritz said. Potential issues with the Schwab-Envestnet deal revolve around advisors losing access to knowledgeable support staff, either because of less experience among staff at Envestnet or the tool receiving a different degree of attention than it had at Schwab.
To mitigate that risk, Fritz recommends including language in a contract that gives a wealth management firm the right to terminate a contract, within six months, without specific cause, in the event of an executive leaving or ownership changes, for example. “Having legal language in your contract can ensure that top talent is adequately incented to stay at the new/restructured firm, which should significantly improve the chances for a smoother transition,” he added. “Software firms will hate this idea, as it will have to be disclosed to any potential investor or purchaser,” and the vendor will likely be resistant, he warned. Nevertheless, he said it’s worth trying to include it in the contract to protect against a negative change in service because of new ownership.
“No major wealth management firms go into contracts thinking this way,” he added.
So while Orion warns of waning support under new ownership and Morningstar drums up fear of dwindling tech choices for advisors, Envestnet seems to feel confident that advisors using PortfolioCenter are happy with the software, or at least set in their ways.