Going beyond anything attempted by its custodian competitors, TD Ameritrade Institutional has embarked on a technology initiative that will open its architecture to third-party software and service providers.
In a recent meeting with InvestmentNews, president and chief executive J. Thomas Bradley Jr. said that the primary reason is to attract new advisers.
“We see this as a way to provide those breaking away from wirehouses or going independent with the largest number of choices in terms of technology,” he said.
He added that the best way to achieve the widest possible set of offerings is to open TD Ameritrade's systems to vendors already popular among advisers, or at least those vendors that can pass the custodian's security review.
In very simplified terms, giving outside vendors access to the company's application-programming interface, or API, will allow external programs to query TD Ameritrade's Veo platform for data seamlessly. For example, if an adviser needs a client's latest holdings in real time, the adviser's portfolio management program or customer relationship management application could access Veo for the needed data.
The first version of the open API will be available in a few weeks.
Experts and analysts agree that TD Ameritrade's initiative, as well as those of other custodians, is indicative of a desire to expand their base of advisers through better technology.
“Here we are still in tight economic times, yet all the major custodians continue to spend millions to upgrade their platforms,” said Sean Cunniff, research director at The Tower Group Inc.
“It validates the concept that a strong technology platform is an essential component of attracting advisers to your firm — that to me is the biggest impact.”
On the technology front, custodians have been waging something of an arms race over the last three years.
In late June, for example, The Charles Schwab Corp. gave its Project C technology initiative an official name — Schwab Intelligent Integration. The company is assessing the popularity of applications used by its advisers in a write-in campaign prior to undertaking integrations.
The first platform in this custodial cold war, Fidelity Investments' WealthCentral, was announced in 2007 and rolled out by Fidelity Institutional Wealth Services two years and $50 million later. That initiative has attracted several hundred registered investment adviser firms.
Today, the platform to beat, at least in terms of popular perception among analysts, industry experts and many advisers, is the one run by Pershing LLC.
Its NetX360 platform offers a high level of integration to both fee-based and commission-based advisers, though even its systems are not presently integrated with third-party vendors to the extent that TD Ameritrade has envisioned.
“All the custodians know that technology is a big problem for advisers,” said Alois Pirker, research director at Aite Group LLC.
“The question becomes: How do you give them more technology and raise their efficiency without killing them on cost?” he added, noting that the typical TD Ameritrade adviser — who tends to have less assets under management than advisers at the three other large custodians — is not going pay a premium for access to technology.
Analysts and experts agree that TD Ameritrade's approach should enable the custodian to realize savings in the long run since the burden of development costs will shift to third parties.
One such company is Orion Advisor Services LLC, a third-party provider of performance-reporting software. Orion president Eric Clarke attended TD Ameritrade's summit in March and said he was impressed by the custodian's approach and its deep understanding of adviser needs.
“We serve more than 200 advisory firms, and we've come to recognize that most have unique needs,” he said. “By sharing an API, TD is the first custodian to address those needs. They're saying that regardless of the technology an adviser uses, TD will integrate with it and make an adviser's work flow efficient.”
Mr. Clarke, chairman of the data standards committee of Your Silver Bullet LLC, a non-profit industry consortium of 25 independent advisory technology companies, said that as part of TD Ameritrade's review process, his company had to complete a 5,000-question document on security, undergo an on-site review and then address questions raised during those processes.
“Completing the review was not easy, so from a due-diligence perspective, TD is doing a huge service for the adviser,” Mr. Clarke said. “If I were an adviser, I wouldn't want to do business with a company that couldn't pass muster.”
In questions relating to the depth of the integrations, Zohar Swaine, managing director for institutional strategy and product organization at TD Ameritrade, pointed out that the company's ultimate goal is full, secure access to its platform.
“As long as their systems are secure, we want providers to have access to every field of data they need,” he said.
While the initial roster of up to a dozen vendors will be announced in the fall, others likely will be added in 2011.
When asked about its plans to accommodate hybrid advisers, Mr. Swaine said that TD Ameritrade Institutional has working relationships with around 10 broker-dealers, and plans to work toward deeper levels of technology integration with a subset of them.
E-mail Davis D. Janowski at djanowski@investmentnews.com.
