47 Portfolio Management Systems Can’t All Survive

Our danger is not too few, but too many options … to be puzzled by innumerable alternatives.

— Sir Richard Livingstone, British Scholar

Overchoice or choice overload^[1] is a cognitive process in which people have a difficult time making a decision when faced with many options. The term was first introduced by Alvin Tofflerin his 1970 book, Future Shock.^[2]

“The presumption is, self-determination is a good thing and choice is essential to self-determination,” says Barry Schwartz, PhD, a psychologist and author of “The Paradox of Choice: Why More is Less”. “But there’s a point where all of this choice starts to be not only unproductive, but counterproductive–a source of pain, regret, worry about missed opportunities and unrealistically high expectations.”

This is true whether the consumer is in the supermarket choosing among peanut butter or if they are a financial advisor in their office trying to choose software. Back in February, I was at the T3 Advisor Conference (remember when we used to go to conferences?) and looking through the list of vendors and starting counting portfolio management applications and came up with 13. This was by far the most of any category and got me thinking about how many products existed across the industry.

After a quick refresh of our annual US portfolio management market scan, we counted 47 vendors.

The number of solutions in this category keeps growing every year with seemingly no end in sight. It’s a veritable cornucopia of options. Every year I say that we’ve got enough vendors in this space and we’re ripe for some consolidation. But it doesn’t happen and then more new products appear!

I sometimes wonder how all of these vendors can make make enough profit to stay in business? The total addressable market is finite. The potential revenue opportunity is finite. There are only so many RIAs, broker-dealers, and other wealth management firms to go around.

Yet here we are with dozens of solutions all vying for attention in an ever-more crowded marketplace.

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How Many Are There?

By our count, there are currently 47 49 vendors selling portfolio management solutions in the wealth management space:

1. Advisor360
2. AdvisorEngine
3. Advyzon
4. Altruist
5. AssetBook
6. Betterment for Advisors
7. Bridge Financial Technology
8. Broadridge Financial
9. Capitect
10. CGI Wealth360
11. Charles River Development
12. Comarch Wealth Management
13. Croesus Advisor
14. D1g1t
15. E*Trade Advisor Services
16. Envestnet (Enterprise) Platform
17. Envestnet PortfolioCenter
18. Envestnet Tamarac
19. Fidelity WealthScape
20. FinFolio
21. FIS Wealth Management
22. Fi-Tek
23. Folio Institutional
24. Hanlon Wealth Platform
25. INDATA IPM
26. InvestCloud
27. Investedge
28. LPL Financial ClientWorks
29. Morningstar Office
30. MyVest
31. Ndex Systems
32. Oranj
33. Orion Advisor Tech
34. Pershing NetX360
35. Portfolio Pathway
36. Profile Axia Suite
37. RBC Black
38. Refinitiv
39. Riskalyze AutoPilot
40. RobustWealth
41. SEI Wealth Platform
42. SS&C Advent Black Diamond
43. SS&C Advent Portfolio Exchange
44. Summit Wealth (not live yet)
45. Tegra118 (The vendor formerly known as Fiserv)
46. TradePMR
47. TradingFront
48. Vestmark One
49. VISE AI

This is a mix of every vendor, no matter which client segment they serve. Some of these products focus only on RIAs, some on enterprises like broker-dealers, asset managers and RIA consolidators, some focus on trust business and some are provided by custodians. I just wanted to show the sheer breadth of products that have crowded into this market.

I didn’t include portfolio rebalancing applications like AdvisorPeak, BlazePortfolio, iRebal, RedBlack Software (recently sold to Invesco), Smartleaf, Softpak since rebalancing is only one part of a portfolio management solution.  Also excluded are digital advice / digital onboarding tools (what some refer to as robo-platforms) like Jemstep or Harvest.  This will probably be changing at some point as Jemstep’s parent company, Invesco, just acquired RedBlack, which they will most likely integrated with Jemstep to create their own portfolio management solution.

Update 06/12/20: 49 was always my lucky number!  Added Betterment for Advisors which offers automated trading and portfolio management including rebalancing, tax loss harvesting, and tax aware asset location. Their portfolio management options are limited to ETFs and mutual funds, but they do have fully-digital account onboarding for a limited set of registration types.

Update 06/01/20: And then there were 48!  In May, Interactive Brokers announced they were launching an RIA portfolio management platform using technology from a company called TradingFront, which was not previously on our list. In fact, we had never heard of TradingFront before this announcement. They appear to be a wholly-owned subsidiary of the MARSCO Investment Corporation, a tiny NJ-based broker-dealer that caters to DIY traders with a no frills service.

Update 05/20/20: We removed Schwab Portfolio Connect from this list since this product only provides billing, dashboards and reporting according to their product features list and future roadmap.  We also added Axia Suite from Profile Software, which a reader alerted us to, so the total number of products remains at 47.

A Finite Market

As I mentioned earlier, the market for portfolio management software is finite. And the assets are highly concentrated in the top 10 or 20% of firms,  There are almost 17,000 RIAs, but 85% of the assets are held by the top 20% of firms. According to FINRA, there are around 3,500 broker-dealers, but the top 5% have most of the assets. So we have most of the above group of vendors fighting over the same pool of customers.

And yet, more vendors keep arriving.  Just this year D1g1t launched with an analytics-based platform that they believe can disrupt the HNW RIA segment.  Tamarac controls 40% of these RIAs with at least $1 billion in AUM.  That’s high for a single vendor and makes them a target for firms like D1g1t.  But can they convince enough firms to switch?  It’s an expensive proposition to convert your portfolio management platform, for a number of reasons:

• Hard conversion cost – Most vendors charge for conversion of data and implementation. These are actual hard dollar costs.
• Training Costs – The operations staff, admin team, management and advisors all need to be trained on the new system. That’s time away from what they are normally doing, which includes prospecting and client service, neither of which should be sacrificed.
• Lost Productivity/Opportunity Costs – Even after conversion and training, it takes time to be as proficient on the new system as you were on the old.  People won’t be as productive so tasks will take longer which could impact client service, also mistakes could be made while getting familiar with the software which also has negative impacts.

Reed Colley, founder of BlackDiamond, announced that he was starting a new company called Summit Wealth Systems to get back into the portfolio management game.  BlackDiamond started as a performance reporting solutions, but has been expanded into a compete wealth management platform, first by Advent and then under SS&C ownership.  When I spoke to him at the T3 Advisor conference in February, he was planning to have a demo ready around now, but I’m guessing the crisis has thrown a wrench into his plans. Still, does the industry need another platform when there are so many options? Where is the value added?

Click Here to Register for our free webinar with leaders from the top 5 enterprise portfolio management vendors! May 12 at 1:00pm ET / 10:00am PT

What’s Inside?

But what does it mean to be a portfolio management system?  We see a lot of product lists that include products that we don’t consider to be portfolio management.  Here are the table stakes functionality that we believe need to be included for a product to be listed in the portfolio management category:

• Account opening
• Model management
• Portfolio construction
• Portfolio accounting
• Portfolio rebalancing
• Trading
• Reconciliation
• Performance Reporting

Additional functionality that some vendors have added include CRM, proposal generation, billing, financial planning, client portals and compliance tools to name a few.  Of course, most every vendor has integrations to other applications as well. Everybody wants to be open architecture.  But they also see the value in having more and more parts of the wealth management life cycle inside their walls.

Advisor experience is becoming more important when making decisions. And having a seamless workflow from module to module is a key part of that.  While the advancing API Economy has made it easier to share data between applications, it’s still not a cakewalk and requires strong a technology team to configure the connections and interface with the different vendors.

Bifurcated Client Segments

The market has been bifurcated for some time into two segments: RIA’s and institutional/enterprise. We rarely saw overlap between the segments since the needs of their advisors were so different.  Firms like Charles River, Envestnet, Vestmark and Tegra118 were the dominant players for asset managers, broker-dealers and banks.

This started to change once breakaway brokers became a thing and independent broker dealers (IBDs) started attracting 1099 advisors to their platforms, although only a few firms have been able to cross over and usually only for smaller broker-dealers. Morningstar and Orion Advisor Tech have been able to make the move from RIA-only and close more enterprise deals.

This is another trend we have seen where everyone is trying to get into everyone else’s space. Firms targeting RIAs want to sell to enterprise and vice versa, believing that there is green field for them in the other segment. This is sometimes the case if a vendor can create a unique offering that leapfrogs the competition. But this only lasts a short while until everyone catches up.

A group that I’ve seen referred to as RIA Consolidators / RIA Aggregators / RIA Networks have created a unique segment that crosses over from RIA to Enterprise and back again.  Firms like Carson Group, Dynasty Financial, HighTower, and Goldman Sachs Personal Financial Management (formerly United Capital) have combined technology, products, services and funding into their own unique combinations.

I was always a fan of what Joe Duran did with United Capital and especially the custom development they did to build out the proprietary onboarding solutions GuideCenter and Money Mind.  I don’t know why more firms don’t try to copy this.  Onboarding is usually the first interaction that clients have with a wealth management firm’s technology. Designing an engaging and collaborative experience builds bonds with new clients that create a solid foundation for future growth.

UC used Envestnet for portfolio management but Carson Group went in a different direction. They not only build onboarding, but an entire platform and UX on top of Orion Advisor Tech, eMoney Advisor and Salesforce. Advisors can still access the underlying tools, but the Carson UI is so intuitive and well-designed, I don’t see why they’d ever need to do that.  Very impressive.  But I digress again.

A Little History (Actually, A Lot of History)

Portfolio management software we know today started with portfolio accounting for investment managers. One of the very early vendors was Security APL, which started in Chicago back in 1978 and built the first enterprise unified managed accounts (UMA) platforms.  They were acquired by Checkfree Corp in 1996 and they were later bought by Fiserv in 2007. Fiserv sold a majority interest in the business unit to private equity firm Motive Partners last year, who renamed the company Tegra118.

One of the first PC-based portfolio accounting applications was created by Advent Software in 1983 targeting smaller investment managers that couldn’t afford a system like Security APL.  Advent’s AXYS product became the de facto standard and was loved by investment managers for its simple user interface and wide range of report options. However, it wasn’t easy to maintain or customize the reports, which is why I started a side business as an AXYS consultant back in the mid-90’s. (Yes, that’s how old I am.)

Advent had the SME market all to themselves for a while, and over the next few decades, a trickle of new entrants came in, but the market was far from flooded. (See #WinnersOfWealthTech Ep 20: Steve Strand, Co-Founder of Advent Software)

The 1990’s saw new companies launch to try and take advantage of the increased popularity of managed accounts. These included ADVISORport (acquired by PNC Bank in 2003 and sold in 2010 to BNY Mellon) and Placemark Investments who developed a flexible UMA platform for broker-dealers and banks which was bought by Envestnet in 2014).

One notable point about Placemark was that not only did they have a solid UMA product, they also had the second largest stable of SMA managers available on their platform that firms could get access to through a single contract. Envestnet spent $66 million, which was a steal considering how it helped them to corner the market on this type of offering.

I can’t tell you how many wealth management  firms have come to us asking for help building out their managed accounts business and wanted to know how they could quickly build a universe of SMA managers without having to negotiate a contract individually with every one.  After this deal, Envestnet became the only destination. It drove a lot of business to them which they were able to service through their Model Delivery Network. It helped them to become the largest TAMP in the industry.

But there’s more than one way to skin this cat. We’ve seen vendors enter this market from all different angles.

FolioDynamix launched in 2007 and grabbed serious market share in the broker-dealer space with a very strong lineup of features including Proposal Generation, IPS, great Rep-as-PM trading tools, a solid lineup of SMA managers plus a TAMP.  They were a strong contender for the better part of a decade going up against Envestnet, Vestmark and Tegra118 in the enterprise space.

They were acquired by Actua Corporation in 2014, in what I thought was a strange deal, in which they probably overpaid by $50 million or more. But these guys had $200 million burning a hole in their collective pockets and were worried they’d have to give the money back to their investors if they didn’t buy something.

They they held onto the company for a few years, while doing nothing useful with it, until selling it to Envestnet in 2017. (See Envestnet Expands Their TAMP Empire with FolioDynamix Deal)

Not to dwell too much on the past, but why does Actua still have a page on their website about FolioDynamix three years after selling it?

Orion Advisor Tech began as an outsourced portfolio accounting service and BlackDiamond was once just a performance reporting engine. But both built out all the features they needed including their own portfolio rebalancers, so they make the list as well.  Both vendors have very large RIA client bases that they can cross sell their software.  Orion has been especially prolific, releasing a robust compliance module, a mean variance optimizer which they white-labeled from Softpak Financial, one of the best in the industry. (See Orion Advisor Tries to Eclipse the Competition With New Portfolio Rebalancer)

The largest wealth management technology platform provider, Envestnet, was formed by a merger in 2004 when they acquired another turnkey provider called Net Asset Management.  This eventually led to (and I’m skipping a lot of time and iterations) what was called the ENV2 platform and is now just referred to as the Envestnet Enterprise platform, which targets the institutional segment and probably has the largest market share.

For RIAs, Envestnet purchased Tamarac in 2014, which began life as a terrific portfolio rebalancer that spread out horizontally until they could support everything from soup to nuts that an advisor would want.  Envestnet has also launched marketplaces to connect insurance and lending providers with advisors and collect fees on transactions.  They have ambitious goals much more than just a provider of technology, services and investment products. (See Envestnet is Transforming into The Alibaba of Wealth Management)

Fast forward again and we saw digital advice platforms expanding their offerings to challenge Tamarac and other providers. Two years ago, I published an article titled, Comparing The Best Digital Advice “Robo-Advisor” Platforms For RIAs. In it I said that it would probably be my last article about digital advice because all of the vendors were expanding their functionality to become end-to-end wealth management platforms.

And they did.  You can see firms like AdvisorEngine and Oranj that started out as digital onboarding tools but are now full featured applications.

Morningstar has been adding pieces to their Office platform by grabbing data aggregator ByAllAccounts and tRx for portfolio rebalancing and building out their own model marketplace and goals-based financial planning.  They are running neck and neck with Envestnet for most advisors using their software with over 120,000. (See #ItsOnWealthtech How Morningstar Quietly Built a Huge Wealthtech Business with Dermot O’Mahony)

Broker-dealers have also gotten into the game by customizing third party platforms and then building their own overlay software to the point where they created completely new offerings. LPL Financial has replaced most of the external software that powers their ClientWorks platform with internally developed code, including their own UMA sleeve construction, although they still outsource a few back-end components. ClientWorks is on its third major iteration and supports their 14,000 advisors as well as 5,000+ AQA Equitable advisors.  Their excellent proposal generation functionality is delivered via AdvisoryWorld, which they acquired in 2018.

Advisor360 was spun off as an independent entity last year from Commonwealth Financial when they realized they needed a larger user base to support continued development costs. But will they be able to attract enough other broker-dealers beyond Mass Mutual, to be successful?

Speaking of Mass Mutual, back in 2005, I was part of a team that built a portfolio management platform for Standard & Poor’s Investment Advisor Services (SPIAS).  I was in charge of designing the portfolio rebalancer, model management and trading tools and it was my first project in this space. We were partnering with Tegra118 for portfolio accounting (although they were still Checkfree then) and Envestnet (actually the Net Asset Management part) and Mass Mutual was our first big client. Even though we went from zero to over $300 million in AUM in around 18 months and had a lot more in the pipeline, S&P shut the business unit down in late 2007.  Probably a good idea for them considering the shit storm that was about to hit them with the Financial Crisis. But I digress…

Custodians weren’t sitting still while all of this technology was been flying around. Almost 20 years ago, they started realizing the benefit of having a technology that they could use as a loss-leader for their custody offering.

Around 2002, Charles Schwab launched PortfolioCenter, one of the first RIA custodians to build out a portfolio management application. It only supported assets custodied on their system. Other custodians followed suit with Pershing launching NetExchange Pro in 2004 (which they later rebranded as NetX360 in 2009) and Fidelity coming out with WealthScape and then spending $50 million to turn it into WealthCentral.  TD Ameritrade was relatively late to the party with their VEO One workstation in 2015.

And then there is the next tier of custodians (I don’t like using the term “second tier”) who while being much smaller than the Big 4. still offer some excellent portfolio management solutions for their RIA clients.  These include E*Trade Advisor Services (the old Trust Company of America), Folio Institutional and TradePMR.

These custodians have steadily improved their functionality and support to the point where these choices are robust enough to support larger RIAs and have pushed software vendors to add more and more features in what we often call the “checklist contest”.  Firms use a long checklist of features they think they need, but probably don’t, and if a product doesn’t have a check next to every line, they’re out. Not the best way to select software, but it is common.

Note: My consulting firm, Ezra Group, has successful delivered projects for the following firms at some point in the past: BNY Mellon, FolioDynamix, Invesco Jemstep, Orion Advisor Tech, Pershing, Placemark Investments, and Tegra118. 

Market Share

One thing that’s very difficult to come by is accurate data on market share. This isn’t just for portfolio management software it’s really any software in our industry. Whether it’s CRM, financial planning, or any kind of software, accurate marketshare data just doesn’t exist.

I have to give a shout out to organizations that try to provide this data. They are doing a great service to the industry even though the data they gather isn’t always accurate.

There are some aspects of business where no data is better than bad data but this isn’t one of those areas. I’d rather have something that shows some aspect of how many advisers are using a product then try to guess with no data.

I happen to think that Financial Planning Magazine does a great job with their annual tech survey and I included one of their charts on the right, which happens to be from 2018.  It shows Morningstar Office as being the number one portfolio management system which I believe is accurate just based on the data that I’ve gathered on my own especially directly from Morningstar where they claim they have over 100,000 advisers using their tools and technologies so a 15% market share seems reasonable or even on the low side.

But the inclusion of Albridge in this particular survey category is wrong. Albridge is not a portfolio management vendor, they are a reporting and data aggregation provider. I see this all the time with surveys putting vendors in the wrong categories, but it’s understandable since this stuff is complicated!

At my firm, Ezra Group and our research team, this is what we do for a living, and we spend a lot of time making sure we know what products are offered and the specific functionality they provide.

We try to help them whenever we can and we’ve actually been working with a number of different vendors who gather data to help them do a better job in knowing which companies. But the inclusion of Albridge in this particular category is incorrect, since they are not a portfolio management vendor. They provide reporting and data aggregation.

We see this all the time on surveys it’s not unusual because the amount technology can be overwhelming to some. But this is what we do for a living. I’m not surprised when other firms don’t do so I know where every firm fits into what particular category. We try to help them whenever we can and we’ve been working with a number of different vendors who gather data to help them do a better job in knowing which companies

Are There Too Many Portfolio Management Products?

36% of all RIAs use multiple custodians according to a 2017 Schwab survey. However, 85% of largest RIAs use multiple custodians according to Discovery Data. A majority of broker-dealers also use more than one custodian. This has been a huge driver of growth for many of the third-party platforms listed above.

While many firms work with multiple custodians, the vast majority have only one portfolio management system!  This places a hard cap on the number of opportunities the market offers.

The great Yogi Berra once said, “It’s tough to make predictions, especially about the future.”  The portfolio management product category is no different. I can’t point to any specific vendors that are more or less likely to go out of business or be acquired, there’s going to be M&A activity in this space sooner rather than later. The COVID-19 crisis and economic downturn will only bring this on more quickly.