IT Challenge

The Challenge:
When it comes to adopting a Web-based wealth-management system to help advisers better manage their client's portfolios, a firm has two choices - buy an existing system from a vendor or build your own. Each strategy has its advantages and disadvantages. Here's how some firms are handling that decision.

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When Jim Graham joined Assante Global Advisers Inc. in Los Angeles, the former registered-investment adviser with mycfo.com knew the advantages that technology brings to the table when managing a client's portfolio.

The weaknesses of the systems he has seen during 19 years in the business center around the lack of cohesion in technology when it comes to portfolio management, asset allocation and leveraging the Web. "The systems I worked with all had components, but they weren't integrated." That meant, for example, he had access to investment plans in one place and the asset-allocation system somewhere else.

Now, Graham works with a system that "integrates not only the planning but the execution for each of our clients. We can place the plans on the Web-based platform, implement the plan and monitor the clients' accounts all off the Web. It has everything from planing to monitoring in one place," including the research platforms that allow him to select investment managers.

The system is broken into four components. The investment platform provides access to information about the money managers used by the firm, which has more than $14 billion under management across the group of companies under the Assante umbrella. There's a management platform, which allows advisers to service and manage their client accounts. A research platform provides access to market information and an administrative platform manages operational issues related to clients, such as cash distributions.

"The biggest thing," he says, "is advisers who have clients all over the U.S. manage their clients from anywhere in the world, so I do not have to sit in an office. I can spend more time with my clients and have all the real-time data available to me without having to carry a bunch of paper around."

What's interesting about Assante's approach is that the firm had the system built on a proprietary basis. Assante employed internal and external resources, one of which was Winnipeg-based Adapsys, a vendor that provides document management and workflow services.

It's a major investment - worth several million dollars - for a firm that employs 2,700. Usually such large projects are only tackled by firms like Merrill Lynch.

Assante's roots are in Canada, where it has cobbled together a number of investment-counsel firms to become one of the largest non-bank-owned financial-adviser networks, catering to high-net-worth clients.

When it decided to break into the U.S. market a few years ago, it was faced with an industry in the late 1990s that was consolidating, with firms being scooped up at "absurd" price levels, says Assante spokesman Adam Dooley. Rather than get into bidding wars, Assante saw opportunities among firms that catered to the entertainment and sports industry, so it acquired some business-management and sports agencies, whose clients needed financial support.

In addition to Graham's operation, the firm has Assante Asset Management Inc, in San Jose, Calif., where the system is now being rolled out to 370 advisers.

Rod De Vos, vice president of product delivery at Assante in its Winnipeg, Man. head office, says that when the firm decided to adopt a new wealth-management system a couple of years ago, it checked out the offerings and didn't find anything that meshed with its investment philosophy. "We come at it from a holistic wealth-planning approach," says De Vos. That means knowing the clients' full picture, from individuals to family assets, goals, needs and desires, as well as things like efficient tax-planning scenarios, cash-flow analysis and insurance reviews.

At the time, when speaking to vendors, "Nobody had everything," he says, so the firm opted to piece together things like Checkfree APL and customized applications built on a proprietary basis that cover everything from portfolio management to asset allocation.

De Vos says the right wealth-management system is central to the firm's desire to grow. "We have high expectations about being able to grow our business in the U.S. and we needed something that will help us and be there for us for a long time."

The high-net-worth space is attractive and Assante appears to be on the right track. Boston-based Celent Communications predicts that management fees in the mass-affluent segment will hit $300 billion by 2005 and spending on online-wealth-management technologies will reach $1.2 billion by the same year, according to a report entitled, "Wealth management market: capturing the heart and wallets of the mass affluent." To succeed, Celent says, financial institutions looking to launch a comprehensive Web-based wealth-management system must take a "holistic approach to wealth management." That includes adopting more personalization, CRM and account-aggregation technologies.

When it comes to building versus buying, Dennis Ceru, director of retail brokerage and investing at the TowerGroup in Needham, Mass., says the need to develop a competitive advantage has led a lot of large firms in the United States to spend heavily on developing their own technology. He says that building usually takes place when a firm needs something sophisticated and complex that the vendor world has yet to bring to market.

Now, he says, a number of vendors have developed wealth-management systems. Nonetheless, "Very little traction is occurring in the overall market." That's because of a "retrenchment in IT spending."

Buying is the route Art Albin's firm, Plante and Moran Financial Advisers, chose when it selected WealthLine, a system from Advent Software, Inc. Plante's firm comprises 40 advisers armed with their CFP or CFA designations who manage $2 billion on behalf of clients, using mutual funds and separate accounts. The firm is part of Plante and Moran, the country's 11th largest certified-public-accounting organization.

He says the primary reason the firm elected to buy a system was cost. "It costs less to buy from Advent" than if the firm built a system itself.

Cost was also on the mind of Craig Henshaw, associate vice president of information technology at the Berkshire group of companies in Burlington, Ontario, which is rolling out x.eye incorporated's wealth manager.

"We're not against the idea of building internally, but you really have to look at things closely." Smaller initiatives, he says, are worth building in-house, but it "didn't make sense for us to try to build" a wealth-management platform based on the products available in the market.

He says it's not the initial cost that hurts when you build yourself, it's the ongoing maintenance and upkeep costs that are the problem. He says there's "significant scope creep in developing something from scratch." Projects tend to miss their deadlines and costs skyrocket. Often the initiative is abandoned after a shelf life of only five years.

Albin adds that vendors also have better relationships with technology companies that they can leverage in development.

De Vos, however, says when something Assante wants has a particular value-add or strategic component, it would prefer to pay and have the system built on a proprietary basis, even if a vendor manages it, to make sure it stays out of the hands of competitors.

Ceru says it boils down to whether or not there's a "good business case" for building it yourself. If a vendor's existing system gives you 80 percent of the functionality you want, you can "live with it and customize the rest, it's not that big of a deal." If it delivers only 40 percent of the needed functionality, and you have to customize the rest, then "consider building your own."