Peter Hess is the new president and CEO of Advent Software Inc., San Francisco, a leading provider of software and services to the investment management industry. Hess was appointed in January, succeeding Stephanie DiMarco, Advent's founder, who stepped down last June, but continues on the company's board and is slated to transition to an advisory role to senior management.
With annual sales of more than $325 million, Advent manages it all: accounting, trading, order execution, hedge fund and venture fund allocation and reconciliation for registered investment advisors, brokers, institutional investors and hedge funds.
MME: What do you see as your biggest challenge?
Peter Hess: We are in a competitive market. There are a fair number of firms who provide the similar performance and client reporting services as Black Diamond [Performance Reporting LLC, the independent advisor software company that Advent Software acquired last May]. But there are a bunch of firms that play in small niches-family offices and small RIA firms. Our strength is in the mid-sized market from $25 million to over $1 billion in assets under management.
We have 10 different competitors in the RIA space. They all have growing businesses. We want to make sure we continue to focus on our clients' success and enable them to differentiate and compete. There are key differences in our product applications compared to our competitors. Black Diamond has a user interface that maps well the way advisors talk to their clients.
MME: What is your strategy to garner more advisory business?
Hess: The ultimate strategy is to broaden the footprint so the advisor can get more workflow addressed through a [single] technology provider and not have to go to multiple technology providers.
Our challenge is how do we grow that value proposition? We have a rebalancing engine that is coming out toward the end of the first quarter. It is in beta right now.
We need to look at other parts of the work flow and decide how we want to build and where we want to partner. People want integrated client relationship management, security selection, analytics and plan development. All those things are capabilities we want to have well integrated into our solution-whether we are building it or partnering. More and more clients will want to access via internet. We will be hosting it.
MME: What is the rebalancing engine going to look like?
Hess: The advisor sets up the rebalancing strategy. The advisor gets the client aligned with that model and make sure the client stays in alignment. We are providing the tool that does math to make sure the allocation of the portfolio investment is mapped to how the model is allocated. The rebalancing engine is also tax sensitive to ensure you are not selling the wrong lots.
MME: What has been the response to your acquisition of Black Diamond?
Hess: Black Diamond had about 250 clients. They are up to 330. They had record sales and volume last year. The merger with Advent was a great message to send about Black Diamond's commitment to the RIA marketplace. It also gave Black Diamond's clients and prospects assurance that Black Diamond is going to be around for a long time.
MME: Are you beefing up the Black Diamond division?
Hess: Our investment in the RIA space is going up. What we can say is that we invested 80% more money in Black Diamond's product development than our competition combined. They will grow their team substantially in 2012. We are adding engineers and customer service staff. RIAs need product integration. It is all about efficiency to make it easy.
MME: Any new products in the pipeline or product upgrades? Earlier this year, the Tamale RMS [Research Management Software] came out with new compliance tools [in reaction to federal insider trading rules] to track, monitor and approve research before it is acted upon in a trade and retain notes on meetings.
Hess: We keep putting out new releases of Black Diamond every month. The big news first quarter is when we officially launch the rebalancing module.
We also have products for the institutional management and hedge fund market. There will be significant releases in 2012. APX (Advent Portfolio Exchange), the core product we market to the asset management world, has a new user interface and dash board presentation. We have added capabilities to Geneva, which does shareholder accounting and fund accounting.
We added significant new features across the product line suite in the third quarter (2011) that included enhanced automation and data integration with popular mobile applications for Tamale. The Advent Portfolio Exchange (APX) reports using Microsoft Reporting Services. We added a detailed transaction data mining tool and a new report packaging tool for Black Diamond.
MME: What types of money managers do you serve in the advisor market?
Hess: We have RIAs. Some call themselves financial planners or work for other types of firms. We do the report accounting and performance measurement for whatever they want to invest in-- including bank CDs, annuities, checking (account) balances, life insurance values and alternative investments that can be put into their system. The RIA can print out clients' asset allocation mixes and asset correlations up to the minute. They can look at an overall wealth picture from all their custodians and private assets.
MME: How much money do you spend on research and development?
Hess: We reinvest close to 17% of our revenue into research and development each year. Last year, that was close $60 million. It will be more because we are growing revenue in the mid-teens.
MME: How do you vet the data that go to your clients? You've said that advisors have to report any trading or account problems that occur before you can make a corrections.
Hess: Our products are processing engines. The data mistakes are a matter of the input by the advisor not being accurate. We get prices, trades and security information from market leading providers. People don't tend to question the data we provide. Some of our clients vet the data themselves. Some clients have us manage the data. We have a reconciliation process to make sure the data is accurate.MME