charles schwab technology

Charles Schwab’s Crystal Ball Sees Less Technology in the Future for Custodians

“What senses do we lack that we cannot see or hear another world all around us?”

Frank Herbert, Dune

Successful business leaders usually see the world differently from everyone else. They’re visionaries who are able to perceive that the world is changing before most other people and they take action to get ahead of the curve.

This strategy is not without risk. When your competition is all moving in the same direction and you decide to break from the pack, people may be confused as to why.  Whether it’s Netflix moving to streaming video or Amazon embracing ebooks, there are many examples of prescient firms that zigged when everyone else zagged and reaped tremendous rewards.

The recent announcement that RIA custodian Schwab is selling their PortfolioCenter platform to technology vendor Envestnet | Tamarac sounds like a potential industry-shifting move. Most RIA/BD custodians have invested heavily in proprietary technology platforms to handle portfolio accounting, portfolio management, trading, reporting, billing and other key functions.  Even moreso at the other members of the “Big 4” who all have their own branded platforms; Fidelity (WealthScape), TD Ameritrade (Veo) and Pershing (NetX360). Fidelity made the biggest splash when they spent $250 million to buy Philadelphia-based eMoney Advisor in 2015 (at the time, rumors abounded that they were snatched away from Envestnet).

This move away from developing and supporting a proprietary wealth management platform could pay off handsomely if Schwab’s bet turns out to be in the right direction.

It is unprecedented for a custodian to make this kind of move, according to Orion Advisor CEO Eric Clarke.  It is also a bold move that backs up Schwab’s strategic focus of open architecture, he said.

This looks like a win-win for both parties, Clarke observed. Schwab offloads a technology headache that they were unsuccessful in addressing and Envestnet receives a windfall of 2,600+ prospective clients that they can upsell into their Tamarac product.

1990’s Technology Had to Go

While many industry pundits were caught unaware, Kristen Schmidt, principal at technology consulting firm RIA Oasis, wasn’t surprised by the news.  In fact, she was relieved, mainly because of Schwab’s failure to upgrade PortfolioCenter to a cloud-based infrastructure, which left many of their RIA clients stuck on older (actually ancient, IMHO) client-server hardware.

“PortfolioCenter did need some fostering and so did their clients. The fact that Tamarac is going to take them under their wing is a good thing,” Schmidt noted.  “My heart goes out to the RIAs that are stuck on the server-based system,” she added, since “they might have the most questions as to what’s next for them.”

Envestnet did not announce their plans for how PortfolioCenter users would be transitioned or how long PortfolioCenter would be supported in its current incarnation.

Many Schwab RIAs are probably wondering if Envestnet is going to force them to switch to Tamarac, Schmidt noted.  This is a serious concern for those firms that are still using PortfolioCenter, since they’re probably also using desktop-based software for other parts of their technology stack, such as Junxure Desktop, she said.

Industry guru Michael Kitces observed on Twitter: “Frankly, I don’t understand why Orion (and Black Diamond and others) weren’t marketing more aggressively to get PortfolioCenter firms for the past 3/5/10 years. It’s been an outdated server-based platform for a decade. Firm were just afraid of switching costs.”

Many RIAs on PortfolioCenter are now asking themselves questions such as “is there be deadlines for us to move? And if so, what other changes will we have to make to support it?”

Fire Sale?

There have been questions about why Schwab sold technology that is used by so many customers for so little.  (Envestnet said that it was too small to even mention.)  The sellers of assets usually know a lot more about their inherent problems than any potential buyers, explained Aron Miodownik, Managing Director at Cambrian Consulting.

While this deal will bring both revenue and clients, it’s not clear what the additional cost burden will be for Envestnet to support Schwab’s aging tech-stack, Miodownik noted. Over the last 10 years, Envestnet has bought a lot of technology, some of which was old (i.e. BNP FundQuest, Prudential WMS) while some could be considered duplicative (i.e. Prima Capital, FolioDynamix, Tamarac). These moves have greatly increased their support costs to the point where they only made $4 million of profit on revenues of $812 million. “That’s not a great net margin story,” he pointed out.

Schwab’s strategy may be more about refocusing resources on their new technology strategy rather than recouping their investment in PortfolioCenter, according Mike Betz, Channel Sales Management at SS&C Advent.  The #1 RIA custodian by assets ($762 billion) appears to have two goals; 1) provide a no-cost, basic advisor dashboard built into Schwab Advisor Center for Schwab-only RIAs to compete with Fidelity, and 2) partner with the top 3rd party firms to offer deep custodial integrations like TD’s VEO network.

Fear of the Cloud

It’s common for many of the PortfolioCenter RIAs to use other desktop-based software and shun the cloud for the majority of their infrastructure, Schmidt noted. These firms have been around a while and have developed efficient workflows and operational processes. They might believe that bringing in cloud-based software would jeopardizes their efficiency.

It’s almost an “if it ain’t broke don’t fix it mentality,” Schmidt observed.

These companies are also concerned that moving their client data into the cloud makes it more vulnerable and increases their risk (it does).  Control of their data is more than important than the flexibility and automatic backups of the cloud, she insisted.

To Merge or Not to Merge?

When Envestnet purchased Tamarac back in 2014, the conventional wisdom was that they were going to consume it or merge it with their ENV platform. But instead, they kept them as two separate products, which in hindsight made a lot of sense because the client bases were so different.

This systems involved in this deal could be handled in much the same manner.

The client profile of RIA’s who use PortfolioCenter is smaller than Tamarac, their average AUM is probably between $300 to $700 million, Schmidt estimated. Since they only clear through Schwab they have fewer requirements than a multi-custodial Tamarac client. So keeping the front end of PortfolioCenter alive could be a good option, she proposed.

Other industry sources I spoke to stated that Schwab RIAs tend to be less tech-savvy and selected their custodian based on their reputation for outstanding customer service rather than their proprietary technology offerings.

TD Ameritrade, Fidelity and Pershing have always invested more in their advisor-facing technology than Schwab and have worked hard to communicate that to the market. This attracts RIAs who believe internally developed technology and integration options with third party applications have a high priority.

Orion’s Land Grab

Every vendor with an RIA technology platform is busy creating a new marketing campaign to target PortfolioCenter firms, which I’m sure are already swamped with emails and their phones are ringing off the hook with salespeople calling them to switch.

So you have to come up with something pretty creative in order to break free of the noise and get noticed.

Orion Advisor Services did just this by offering 9 months of free service to PortfolioCenter firms.  This is a brilliant marketing idea!

Most advisors have multi-year relationships with their technology vendors, so the window to switch platforms only comes around every so often. When it does, inertia often keeps most clients tied to whatever systems they’re currently using since it is often too much trouble for them to look into alternatives. And the cost and effort required to switch portfolio accounting systems are giant obstacles to those firms considering alternatives.

The primary blocking point for firms considering whether to leave PortfolioCenter is not the higher cost of alternatives, per se, but the switching costs. The migrations are expensive when you include the soft costs of both time and extra burden on staff, explained Michael Kitces, Director of Wealth Management for Pinnacle Advisory Group (via Twitter).

The PortfolioCenter deal is a once-a-decade opportunity for vendors to get in front of thousands of prospective clients who are being forced to think about their options even if they don’t plan to move.

I spoke to Orion’s CEO Eric Clarke about their awesome marketing idea and asked him why they chose 9 months?  He said that during discussions with his team, they felt that 6 months sounded too short while a year sounded desperate.

Prospective clients need enough time to make an informed decision, Clarke said. Since it takes around two months just to map and convert their data and then time for training, they would need more than six months to evaluate the platform.

They also wanted prospective customers to have time to go through at least one quarter end for a side-by-side comparison.  This led them to nine months.

Their offer also includes free historical data conversions. For firms with complex data issues this might be as much as a $10,000 value, Clarke noted. Sounds like a pretty sweet deal!

Orion will be swallowing the costs for the free service.  Depending on how many PortfolioCenter clients jump onto the free trial, this offer could cost them upwards of 7 figures in revenue, Clarke admitted. This is when it is good to have a parent company with deep pockets.

For the Longest Time

Envestnet is countering their competitors’ with a deal of their own by offering up to two years of free service for firms that sign contract extensions of four or seven years.  This might seem like a long time to some observers, but not to those familiar with this client segment.

It’s not uncommon to see PortfolioCenter users that have been on the platform for 15 or 20 years or longer, Schmidt countered. And it is the only system they have ever used. The historical data these firms have inside that system is from the beginning of time, so any conversion would be painful, she stated.

(I hope that Orion considered this when offering free data conversions.)

Moving On Up

The question on everyone’s mind is how many PortfolioCenter users will eventually convert to Tamarac?  One hurdle is that Tamarac is an all in one system offering that includes a built-in CRM. Any firms that use the desktop-based version of Junxure CRM would have to migrate either to the cloud version (since it’s local and can’t share data) or to Tamarac’s CRM. Either of those are big steps.

Combine that with migrating your portfolio accounting history and adapting to the Tamarac rebalancer, which is very powerful and requires a lot of training and the obstacles keep piling up. The Tamarac implementation teams have a lot of work ahead of them!

All that can be scary for firms trying to make a decision about their core investment technology, Schmidt observed, even though Tamarac is an incredible system.

Expect to see a lot pricing flexibility as well.  According to, the average PortfolioCenter client is paying around $3,000 per year. Compare that to a firm with $200 million in AUM and 200 accounts that would pay approximately $16,000 a year for Tamarac, according to their spokesperson.  That could be the low end based on what we know about PortfolioCenter firms.

Even though Tamarac has a lot of powerful functionality that PortfolioCenter lacks, it is still a big number to swallow.  This is where the opportunity lies for competitors that have lower-priced offerings.  Tamarac has always played up their market share in $1 billion+ RIAs, where price is less of an issue. They will have to create a hybrid offering that has a subset of functionality for a more reasonable price in order to compete for the bulk of PortfolioCenter clients.

Firms need to realize that there’s more to conversion costs than just the licensing fee for the the new system. Even if the data migration is free you still need to consider the time required for your staff to run both portfolio management systems side-by-side for months (at least through two or three quarter ends) to ensure that everything is working properly, Schmidt warned.

Popular alternative vendors with strong RIA platform offerings include Morningstar Office, SS&C Black Diamond, AdvisorEngine, Oranj and CircleBlack, to name just a few.  Envestnet needs to up their marketing game to better communicate the value of their products and downplay the complexity.

Charles Schwab Technology

Schwab’s PortfolioCenter has been an efficient and relatively inexpensive portfolio accounting system and has done its job. But it’s clear that Schwab has decided that’s not enough for them to maintain their edge in the future of the RIA custody market.

While PortfolioCenter isn’t broken and firms aren’t jumping ship, it’s wise to look towards the future and place your bets accordingly. Schwab is betting on technology being less of a deciding factor in RIAs custody decisions and customer service playing a larger role.

I hate ending an article by saying, “we’ll have to wait and see how this plays out.” But that’s how I’m going to end this. If assets start to flow towards Fidelity, Pershing and TD Ameritrade because of their proprietary technology and away from Schwab, then their bet will have failed. But if they continue their strong growth and maintain or expand their leadership position, then their crystal ball will have been proven right.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at