Schwab bets less is more with revamped Portfolio Center

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In a world of open architecture and almost infinite tech choices, less might soon be more.

Charles Schwab’s new portfolio management software may reflect a new paradigm where firms are asking for simpler offerings with less customization to ease the pressures of choosing the right mix. And as smaller firms and breakaway teams not accustomed to creating tech stacks flourish, an open architecture style with a standardized desktop and basic options might be a more attractive way forward.

That was the idea behind Portfolio Connect, which was once envisioned as a multi-custodial, one-stop shop. The portfolio managment software gives advisors access to Schwab’s data reporting without the annoyances of downloading the data or reconciliations. Schwab Advisor Services offers 50 third-party integrations on its platform, according to the firm.

After originally offering the tech to 60 firms in a pilot program last year, Schwab tacked on 30 new clients in just 24 hours, says Lauren Wilkinson, Schwab’s vice president of digital advisor solutions. “The amount of advisors now using third-party technology has blossomed in recent years with a lot of differentiation and sophistication — and a lot of different price points,” says Wilkinson.

The software is free to advisors that custody with Schwab and replaces the aging, but ever-popular Portfolio Center platform, which was sold to Envestnet in March. For advisors that exclusively custody with Schwab, the price is well worth the ease of use, say Joel Bruckenstein, founder of the wealth management conference T3. “For most advisors, investments are becoming commoditized and if investments are commoditized then why would you pay for portfolio management software,” says Bruckenstein.

The complexity of choosing tech providers was a major reason why Schwab spurned the multi-custodial vision of portfolio management for a much simpler one, Wilkinson says. In fact, most of the new entrants manage less than $100 million in client assets.

“It’s designed to be a more simplified, cost-efficient solution that does not have all the customization that you might be able to get from a third-party management system,” Wilkinson says.

The software does not include performance by security or position level, internal rate of return calculation nor blended benchmarks or targets, according to the firm’s website. “A lot of breakaway firms are looking for a custodian who can provide the most support and technology is a key part of that,” Wilkinson says. “They’re looking for an easy button.”

Smaller firms are also some of the fastest growing in the industry taking in more new client assets than their peers, according to Schwab’s 2018 RIA Benchmark study, making them a lucrative target client for new technology offerings. For small firms, maintaining that growth curve becomes a top priority.

The new features — both advisor- and client-facing — are value adds, says William Trout, analyst at Celent, and build on other Schwab initiatives to become a fully digital platform like its paperless onboarding option. However, competitors like Fidelity and TAMPs like Envestnet offer a host of similar tools as well and have helped to foster open architecture platforms.

“It’s attractive or even enticing to advisors,” Trout says, “but not a game changer in terms of determining where they’ll land.”

A larger factor in attracting new advisors could be price. After Schwab sold Portfolio Center to Envestnet for an undisclosed sum in February, an industry-wide price war erupted to lure over advisors on the Schwab network. Orion, Morningstar and Black Diamond all offered discounted deals for their portfolio management software for advisors looking to make the switch.

“The sale of Portfolio Center really allowed us to double down our focus on Portfolio Connect,” Wilkinson says.

The booming wealth management technology industry has also led to a commoditization of portfolio tools. Almost eight in ten advisors now use a portfolio management system, down three percentage points from last year, according to Financial Planning’s 2019 Tech Survey.

“Schwab deserves kudos here, as the trend to commoditization has been in full play since 2015,” Trout says. “The launch of Portfolio Connect is an early salvo of many to come in the fight to hybridize the human advisor.”

However, some Schwab advisors, like Erika Safran of the eponymous RIA based in New York, are still using Portfolio Center through Envestnet and have not been inspired to make the leap to competing platforms — even with the drastically reduced fees. Schwab has not reached out regarding a switch to the updated Portfolio Connect, Safran says, although she recently filled out a Schwab questionnaire to get more information.

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Schwab may be right to play toward the smaller firms, but might have to be patient getting their attention. “I will switch at some point, but not now,” Safran says, who lists approximately $80 million in client assets and two advisor on the firm’s Form ADV. “Am way way too busy with new clients to implement an immediate disruption."

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Investment technology Portfolio management Performance-based management tools RIAs Independent advisors Charles Schwab Schwab Advisor Services