In the evolving US wealth management market, the fast-growing registered investment advisors market is proving a particularly busy hunting ground for financial technology player Advent Software.

The independent RIA market is the fastest-growing segment of the financial services industry. At $1.9 trillion in assets and over 16,000 advisors (Source: Cerulli Associates) and growing at 10 to 15 per cent a year, these firms serve close to one-third of the assets of affluent US households, a huge market segment. 

This business area is already big, but there is even more of an opportunity ahead, Advent Software told this publication following a recent visit to its corporate headquarters in San Francisco.

“In addition to our 2,000-plus RIA clients, many of our core institutional asset manager clients also have wealth management and advisory components to their businesses. We anticipate this number to continue to grow significantly due to industry growth and our investment in purpose-built platforms to directly serve this part of the industry,” the firm said in response to questions.

“The RIA market is incredibly diverse, with varied business practices, but generally we focus on the unique qualities of their firms first such as the types of clients they serve and the services they offer them (for example, investment management, financial planning, small business planning),” Advent said.

Advent has been busy. As reported a few days ago in these pages, Advent built on its 20-year business relationship with brokerage and investment titan Charles Schwab by signing an agreement to integrate two of the former’s portfolio management platforms into Schwab OpenView Gateway. This will extend the availability of custody information from Charles Schwab & Co.

Among other developments, Advent Software announced in September that it has added managing and reporting capabilities for alternative investments to its Black Diamond platform. (Black Diamond, a provider of services such as cloud-based computing, is a business that Advent purchased last spring.)

In May this year Advent released its cloud-based platform for wealth and asset managers, tying together a number of systems. The platform brought together Advent Portfolio Exchange, Moxy, Advent Rules Manager, Advent Revenue Center, Advent General Ledger Exchange, Tradex, Advent Corporate Actions, and Advent Custodial Data to support key workflows and data across the entire investment process.

The last few months have been a bumpy ride for this firm. At the end of October, Advent Software reported a rise in profit for the third quarter, helped mainly by higher revenues. Net income for the quarter increased to $7.7 million or $0.15 per share from $6.8 million or $0.13 per share in the same period last year. However, a poll of analysts by Thomson Reuters predicted Advent Software would earn $0.25 per share for the quarter.

Shares in the firm have been bumpy, oscillating over the past 12 months between around $28 and $20 per share. At its current share price - around $22 - the firm has a market capitalization of $1.160 billion and a price-earnings ratio of 43.70.

Growth and targets

Advent is bullish about what its Black Diamond business can bring to the party.

“Our clients tend to be the larger, more sophisticated investment management and advisory firms in the industry. As an example, we currently work with 36 of the Top 50 RIAs in the Investment News Top 50 RIAs, including 8 of the top 10. We also work with 32 of the Top 50 in Financial Advisor Magazine’s Top 50 RIA ranking,” the firm said.

“The ones we don’t work with are often using proprietary technology (such as wire-house advisors such as Morgan Stanley, Merrill Lynch and UBS). The fastest growth in our business is for RIAs migrating to our cloud-based solutions - Black Diamond and Advent OnDemand - which combined serve close to 1,000 firms. The Black Diamond client base has grown over 30 per cent and assets on Black Diamond have doubled since the acquisition in June of 2011,” it said.

Black Diamond

Many of the firm’s top managers have come from places such as Charles Schwab – a firm that, as covered by Family Wealth Report recently, holds about a quarter of the custody market for RIAs in the US. One of Advent’s top men is Dave Welling, general manager of Black Diamond, an independent business unit of Advent Software. Welling has previously worked at firms such as Charles Schwab and he joined the Black Diamond team three years ago.

“When you think about advisory firms, they had to go through a huge amount of change in 2008 and 2009. Before the crisis, all you needed to do was run the revenue side of the P&L. The market was growing so strongly – then all that changed,” Welling said.

“The markets dropped and most advisory firms of a fee-based structure used at the time had pressure on their revenues but costs escalated due to the increased demands of serving clients.”

Asked about the Black Diamond business, Welling was upbeat.

“Black Diamond is a cloud-based solution. We provide technology as well as take responsibility for the data management and operational tasks from managers. The business [of wealth management advice] is labor-intensive and advisors want to focus their time on: serving clients or managing their clients wealth - yet a lot of tasks are in the back-office," he said.

“These [back-office] roles are not directly serving the clients. Where Advent comes in is to have a purpose-built, client solution for the advisory space,” he said.

He gave the example of an RIA business, affiliated with Raymond James, called Vinoy Capital which oversees around $190 million of client money and employs three people. “When you look at this firm and other $190 million firms, they may have seven or more staff. This firm [Vinoy] has a cost structure a third of the average,” he said. 

Welling also gave some attention to Advent’s advisor study group and the work it does in publishing findings.

“Clearly, advisors are concerned about investment; they are also trying to broaden their footprint beyond investment. Advisors are not just wrestling with advice but with how best to run such a firm. The value that technology can provide is not just a more efficient cost structure but enabling advisors to give a better service to clients. A lot of advisors are still in a sort of 'just call me and come to the office' mindset. They are missing the point.

“When you talk to investors, the biggest challenge that the industry has is that investors don’t trust it because of what is happening in the world,” he added.

One of the paradoxes of business development in the advisory industry is that some of the smartest advisors are sometimes not good at promoting their own brands, he said. 

“Advisors by nature focus on serving clients, managing assets and providing expertise to help investors manage their financial lives. They are not marketers by nature and for smaller firms they may not have the resources, expertise or focus to focus on growing their firm and finding new clients. Technology is changing so rapidly – social media, web-based technology – [to] allow advisors to be much more targeted and efficient in these efforts vs. old school tools like direct mail and advertising,” Welling said.

“There are a number of small mid-scale firms where technology can help…they have a significant marketing problem. People don’t understand them and what they do,” he added.