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Glass Half Full?

I’m going to be attending the T3 conference in a couple of weeks (February 17-19 in San Diego), with mixed feelings.  On the one hand, I’ve been hearing a lot of quiet talk about the potential death of TD Ameritrade’s open-architecture Veo platform, when Schwab absorbs the company sometime later this year or next year.  Over and over again, when I interviewed new software companies, they would tell me that their first integration was with Veo, because TD Ameritrade was the only custodian that would take a chance on them. 

At the same time (I think this is also significant) they would inevitably tell me that the Schwab Advisor Services platform integration was the one which (at the time of my interview) the company was still hoping to make happen.  You have the laggard acquiring the fast adopter—and I don’t see how that’s good for the fin-tech ecology overall.

Continuing this gloomy theme, when the two largest independent custodians merge into one, it obviously reduces choice in the marketplace.  Fewer competitors seems inevitably to lead to a self-referential focus; if you don’t have to worry about the competition (because you now own it), you can turn your attention away from serving customers, and focus more on profit margins and company bonuses.

I said I have mixed feelings, and there is also a case for optimism.  Last month, I wrote about a number of less-well-known platforms, some of them new or being completely rewritten, which now have an opportunity to gain additional scale from disaffected firms that formerly custodied at TDAI.  The SEI platform (see earlier article) means that four of the custodians have new rewrites of their account management software, which means more advanced, more competitive capabilities that will put pressure on Schwab to do its own ground-to-sky rewrite—or else lose assets.  Schwab can rise to the occasion or not; if not, then we’ll know that its heart lies with the retail business. 

Beyond that, I see more new software programs coming into the advisor space than ever before.  Does anybody remember when the software landscape consisted of a few clunky financial planning programs?  When there were only a couple of asset management programs?  When CRM wasn’t even a category?  Not to mention e-signature systems, client risk tolerance instruments, account aggregation and college planning software.  The most recent T3/Inside Information software survey, which I’m working on as you read this, contains more than 500 programs, services and tools, and there were write-in votes for at least 300 more.  The diversity in the fin-tech space today would astonish somebody coming out of a time machine from 10 or 15 years ago.

Moreover, at least some of those rewritten platforms will be fundamentally open-architecture, if for no other reason than to claim the mantle previously owned by Veo.  That will give startup software companies that important first integration and a cadre of users who can become the test cases for future improvements.  There will be more competition among platforms to embrace integrations, putting additional pressure on Schwab to be more accommodative than it has been.  If this all plays out like I think it will, Schwab post-acquisition will have greater market share than it has ever had since around 1994, but also more diverse and viable (from a scale standpoint) competition than it has ever had.

On balance, I think the initial gloom at the announcement is mostly not justified.  I do fear for the staff people in the TD Ameritrade Institutional organization, but I also think that most of them would make great hires in advisory firms if there isn’t a place for them in the rolled up entity.  Everywhere I look, the glass is a little bit more than half full, and I’m not sure I would have believed in that outcome if you had told me about the acquisition a year ago.