Eerily reminiscent of Microsoft, one adviser software provider has created a suite of programs, seamlessly merged with proprietary Web services. Like Microsoft, it sticks to no single growth strategy, but eagerly forms distribution partnerships and rapidly buys out other providers, including rivals.
Like Microsoft, it plays tough, engages in lawsuits and attracts antitrust investigations. And, like Microsoft, it has become the de-facto industry standard.
The company, of course, is San Francisco-based Advent. And the Microsoft-like, love-hate relationship it has spawned among advisers leads to one question: Will Advent's dominance of the portfolio management software market continue despite adviser and mutual fund company fears the firm is growing too powerful? Advent, of course, predicts its own future success. The secret, it says, is that the firm has never been just about its software.
"Think about what we really do," said Collin Cohen, an executive vice president at the firm. "We enable advisers and managers to deliver more value to their clients." Along with Axys, Advent's main portfolio management engine that's widely used in the fund industry, "we have tools and capabilities [as well as] integration with a whole host of alliance partners to allow advisers to start up and manage the growth of their practices," Cohen said.
And Advent is doing that at an increasing rate, ever since its founding in 1983.
Knowing firsthand how the players in financial services operate no doubt helped the company understand its market. Chairman and founder Stephanie DiMarco had been a financial analyst and portfolio manager at Bank of America, Summit Investments and Cole Financial Group. Peter Caswell, president and CEO, was formerly with Dun & Bradstreet. Cohen is a veteran of management consultants Bain and Co. and American Industrial Partners, a buyout fund.
Most other vendors are owned by strict techies, Cohen said.
Advent, apparently, gave advisers what they wanted. In addition to Axys, Advent developed reconciliation and contact management modules that work in conjunction with the main portfolio management functions. But Advent, even with its 800 current employees, recognized it was a minor player in the advisory market. The big guys - Schwab, TD Waterhouse, Fidelity - provide the essential back-office functions advisers required. So, Advent worked with the big guys to offer Internet-based access to advisers and their custodians' accounts.
Since collaboration is a way that allows advisers to keep in continuous contact with clients, Advent developed a point-to-point interface for downloading data. Later came Advent Custodial Data (ACD), an expansion that permits data management from multiple custodians.
For true data consolidation, Advent also unrolled TrustedNetwork, a secure method by which a group of financial institutions share data through Advent to help advisers manage multiple client accounts. Fidelity and TD Waterhouse are just two of the approximately 100 institutions providing data through TrustedNetwork. Advent basically turned TD Waterhouse into an authorized dealer that provides Advent software free or at low cost to affiliated advisers in a freestanding model, or integrated with Veo, Waterhouse's proprietary system.
If You Can't Build It . . . Buy It
And when Advent couldn't build or partner, it bought. At the end of 2001, it purchased Kinexus, a leader in wealth-management reports for advisers of high-net-worth investors.
Advent is happy with its partnering model. "We're finding that sometimes advisers prefer just to deal with larger institutions, and instead of getting software through us, they would like to go through institutions and get access to software as part of broader services that a Fidelity or TD Waterhouse can offer," Cohen said. But he says Advent will always be available direct as well.
To show its pricing flexibility, it assembled Advent Office Essentials, a package of products aimed at the small adviser and priced accordingly.
Thorns in Advent's Side
Advent was looking unstoppable. Its main challenges came from just two other products: Centerpiece, produced by a Schwab subsidiary, and Techfi, a small but sophisticated upstart. Centerpiece claims to have about 3,300 licensees, as opposed to Advent, which is licensed by about 6,500 firms. Techfi has about 500 licensees.
So what did Advent do? It bought Techfi and got sued by Schwab.
Advent encouraged its Schwab customers to switch to ACD from the simpler point-to-point system for downloading data. Since ACD actually aggregates data from multiple custodians, Schwab feared data would slip from its control into the electronic clutches of a mere software company. In turn, Schwab customers feared they would be forced into the more expensive ACD if Advent stopped supporting it point-to-point, although Advent promised that it wouldn't interfere.
The conflict moved into court, as Schwab sued Advent in November 2001. This past August, Schwab settled out of court. Under the new agreement, the two companies will support each other's products seamlessly through Dec. 30, 2004. So, users basically have more than two years to decide which platform to use.
Schwab acquired upstart Techfi for $23 million this past June, only to incur the immediate scrutiny of the antitrust division of the Department of Justice. By July 24, Advent announced that the DOJ had dropped the investigation.
Even if the Techfi deal had fallen through, Advent is still the last man standing. And whatever product advisers today feel is best or most economical is almost beyond the point.
Like Microsoft, Advent - despite, or perhaps because of, its success - is still the subject of resentment. Advent Software's stock (ADVS), however, is suffering along with other high-profile tech names. On Oct. 9, ADVS hit a new 52-week low of $9.78 according to Morningstar of Chicago. As well, analysts lowered their current fiscal year EPS for ADVS from 0.47 to 0.33, and for next fiscal year, from 0.88 to 0.68, according to Morningstar.
The fact remains, however, that both Advent and Microsoft enjoy many satisfied customers. And those customers who are unhappy are unwilling to do much about it. Yet Keith Huber did.
Huber, of Huber Cardono Moring, an investment adviser in Houston with $80 million in assets under management, switched to Techfi last year after about seven years with Advent. Speaking before the merger, he said he was happy he made the switch because Techfi is "more user-friendly. Report modification is easier," he said, as well as cheaper. With Advent, "There was always some new fee," Huber said.
Even Cohen admitted: "Techfi is aimed at a different segment, advisers who don't manage complex assets. It's a simpler product with simpler functionality."
So is being a small adviser enough of a reason to switch from Advent? Not according to Jay Healy of Progress Capital in Collierville, Tenn. He's a happy Advent user with a mere $12 million in assets. "We're very satisfied, and found the price competitive with Techfi and Centerpiece." He said it took his firm just $2,500 to get started with Advent. And being small, he said, he really appreciated Advent's patient and sophisticated online training system. "Advent is easier than it looks, even though the interface is not as slick as some other products," Healy said. For Healy, TrustedNetwork and Advent's WealthLine (which allows planners to offer clients access to financial information via a branded Web site) were selling points.
Still, for giant Keller Group Investment Management in Irvine, Calif., which manages $750 million, pricing is "a problem," said John Hakopian and Marr Leisure, who concede they have never been dissatisfied with the products themselves. "Ten years ago, nothing came close to Advent, and it's still the premier platform. And - you pay a premium," Hakopian said.
Hakopian loves the report-generation feature, especially its ability to print reports from a client's desktop. Although Keller is a Schwab customer, the firm is not thinking of switching to Centerpiece.
Dean Mioli, CFP, CPA/PFS, of Comprehensive Investment Solutions in Yardley, Pa., has mixed feelings. He helped evaluate software on behalf of the American Institute of CPAs two years ago. At that time, he found Centerpiece and Techfi "more Windows-based and familiar," while Advent could be prohibitively expensive. Today, Mioli's firm uses Centerpiece with Schwab. However, Mioli admits Advent has some features that would simplify the entry process. "But it's hard to change once you make a commitment. It's like a divorce and a remarriage," He reasoned.
Jim Starcev of Etelligent Consulting, a software consultant and RIA in Overland Park, Kan., tried to sum up the ambiguous results. In a pre-merger interview, Starcev praised Advent as "robust" but ultimately found it "non-intuitive with a hard report format." He also admired Advent for reaching across such a wide channel. Like Mioli, Starcev said switching was hard, but Advent's pricing may encourage advisers to change when they gain $100 million and are no longer eligible for Office Essentials.
Starcev also wondered whether Techfi would be good for the $100 million and higher market.
Advisers can be keen followers of market forces on behalf of their clients. But market forces affect them, too. Hakopian defended Advent, and its prices, with a shrug. After all, he said, "They do have shareholders to respond to. And there is nothing else out there."