Tech update: Data standards elusive

Lack of data standards has slowed the evolution of the advisory business. “Things move at glacial speed in the financial services world,” said Bill Harris, who is probably best known for having served as chief executive at both PayPal and Intuit Inc. Mr. Harris many times has sought to bridge his dual interests in the financial services and pure technology sectors, giving him a particularly clear view of the hurdles that have to be overcome to build a successful financial services tech company. The serial entrepreneur has launched a new firm called Personal Capital Corp., which seeks to provide account aggregation to a mass-affluent audience, as well as individualized investment management advice through financial advisers, all of it online. “A much bigger issue [than standards], though, is the fragmented nature of how financial services technology has evolved,” Mr. Harris said. “A lot of it is a mom-and-pop world.” Take RedBlack Software LLC, for example, a provider of stand-alone desktop re-balancing software. Peter Giza, chief of technology and business development at RedBlack, became so frustrated at the lack of industry movement toward a standard that he has come up with his own framework for achieving one, tentatively called f3. The numeral 3 is symbolic of the three key players within the financial advisory world: industry consumers (including advisers and clients, among others), custodians and tech vendors such as RedBlack. “My background is systems architecture, so I started to think through the problems of connecting to all the parties I need to,” Mr. Giza said. He is no stranger to working on organizations devoted to standards. In the 1990s, Mr. Giza served on Hewlett-Packard Co.'s engineering delegation to the Open Software Foundation, a nonprofit that developed an open standard for the UNIX operating system. “If [f3] were embraced, the custodians would become the standards body. They would be in control and put forth their chief developers to work with those of the vendors,” Mr. Giza said. Indeed, f3 isn't the first attempt at creating such standards. Your Silver Bullet LLC, a nonprofit advisory industry consortium of 25 independent software companies, published two initial frameworks in April 2010. These frameworks came in the form of two documents, Investment Management Software Data Standards and Customer Relationship Management Data Standards. Each document set forth high-level definitions and documentation allowing tech companies to integrate their software offerings more efficiently. Think of them as a common language and file layout for software vendors to use as a starting point in allowing different programs to talk to one another. For example, in the investment management guide, all developers that use the framework agree that the definition of “price” refers to the net asset value or the value tied to a given security as of a specific date or point in time. Although many advisers and tech vendors are in support of such frameworks or standards, few have illusions that they ever will receive the necessary buy-in from custodians to make them successful. “Creating data standards is probably a nonstarter,” said David Fetter, chief executive of Fetter Logic Inc. and Quadron Data Solutions. He is a technologist, consultant and 20-year veteran of the industry whose companies specialize in providing advanced data management solutions for independent, bank and insurance broker-dealers. “The source-of-record data custodians have conventions they implemented many years ago, and their systems would have to be rewritten to comply with new standards,” Mr. Fetter said.

ANOTHER IDEA

He and Mr. Giza said that the most likely alternative to a data standard — and the only viable solution to the lack of one — is data exchange between systems using real-time application programming interfaces and web services. In other words, agreements must be made about how to pass data effectively from one proprietary system to another. In such an arrangement, all parties, rather than agreeing to speak one language (a data standard), would agree to the same sets of dictionaries containing the universe of definitions for data points used across the financial services industry. “This will support tighter integration between provider systems like our account opening with e-signature system, for example, but also allow greater utility to advisers who want to retrieve data from one or several sources and pass it to an application they use, like financial planning software,” Mr. Fetter said. In fact, one group in the financial services industry has had success in following this type of methodology to create its own subset of standards. The Money Management Institute has created the Managed Account Solutions Standards committee and six subcommittees. These include billing, trading, reconciliation, account origination and maintenance, and model maintenance. “Though getting adoption of data standards is challenging, technology like ETL [extract, transform and load] tools does allow even legacy systems to participate in standards,” said Cheryl Nash, president of managed-account giant Fiserv. All the major custodians have expressed support for the idea of standards, but at the same time, all prefer their own efforts to create large advisory platforms. “We think there is an opportunity for our industry to have more-consistent data standards for advisers and technology providers,” Neesha Hathi, vice president of technology solutions for Schwab Advisor Services, wrote in an e-mail.

BEST OF BREED

But she went on to explain that for now, Schwab is pursuing a “standards-based approach to integration” by building its Schwab Intelligent Integration platform. That means selecting a core group of what the firm considers best-of-breed providers in several key areas, she wrote. Among the major custodians, TD Ameritrade Institutional has taken the route closest to what Mr. Giza envisions. TD's open-application-interface initiative has attracted the interest of 33 third-party tech vendors, all of which are in the process of getting their systems to accept data directly from TD's Veo accounting management reporting system. Jon Patullo, director of tech product management at TD Ameritrade Institutional, said getting the whole industry onto a single standard or framework will be tough. “There is already a standard out there for trading — the FIX protocol — and everyone using it codes to the same standard, and we process trades that way. But there are challenges,” Mr. Patullo said. “[For example], despite having a security master, firms get different feeds on pricing for the same securities.” Mr. Giza thinks that the custodians are far too sensitive to the fear that they would lose assets if they created data standards that leveled the playing field. “It sounds like Nirvana, but it can be done. So what if Schwab's [application programming interface] and TD's API look the same; how bad would that be for their businesses?” Mr. Giza said. “Advisers go with them based on shared core values and personality, not technology.” djanowski@investmentnews.com