Executive Summary
The total addressable marketplace for financial advisor technology is limited, with a ‘mere’ few hundred thousand financial advisors (as contrasted with millions upon millions of potential users with direct-to-consumer software). And while at advisor (and especially enterprise) prices, that is still a healthy marketplace for software, it is further limited by the fact that not all advisory firms do the same thing, and the addressable market for any particular software solution may be even more limited (and is further complicated by the fact that overlapping advisor licenses made it difficult to count the exact market opportunity in the first place!). A matter that is both simplified, but also further limited, by the ongoing trend towards industry consolidation, that is splitting the market between a few behemoth wealth management firms (meaning larger but fewer enterprise opportunities), and a flood of small firms (who aren’t necessarily in the market for sophisticated, complex FinTech offerings, and can be expensive and challenging to reach from a software distribution perspective).
Yet despite the limitations in market opportunity, certain categories in the FinTech landscape – in particular, portfolio management systems – continue to grow each year, as more and more competing vendors vie to provide complete end-to-end solutions for (a not necessarily growing number of) advisory firms. And while this trend is certainly a natural stage in any maturing market, the presence of so many portfolio management systems that aim to support almost every step of the investment management process is resulting in an overwhelming array of choices for advisors… none of which are able to really differentiate themselves beyond a variety of increasingly bloated and often cumbersome user experiences. Especially when advisory firms can simply use the growing breadth of API integrations to cobble together their own “best-of-breed” solution anyway.
On the other hand, for many firms, a less-than-perfect all-in-one solution can still be preferable to cobbling together a smorgasbord of what may be “best-of-breed” solutions to address each stage of the portfolio management process, which in practice almost never results in the desired seamless workflow that really passes along relevant data and tasks through the various steps. Instead, firms – especially enterprises – do seem to be shifting towards all-in-one offerings, opting for the “one throat to choke” solution that (at the very least) makes it easier for them to figure out who to blame when something breaks, and leaving one vendor accountable instead of leaving it up to the advisor to manage whatever problems that may arise.
Still, though, the problem remains that more and more competition amongst both best-of-breed and all-in-one portfolio management solutions has left us with a landscape that is crowded with a whopping 50 portfolio management systems for advisory firms to choose from. And with a limited number of opportunities for vendors to target (especially as various custodians develop their own in-house portfolio solutions, such as Schwab’s Portfolio Connect and Fidelity’s WealthScape), conditions are ripe for smaller vendors to either team up, or look for potential buyers, rather than getting squeezed out of business. The current crisis created by the pandemic and the resulting economic downturn will likely only accelerate this process.
Which, at the end of the day, could result in a smaller playing field of portfolio management systems for advisors, and a higher hurdle for any new offerings that will have an even harder time trying to differentiate themselves. Because in the end, advisor choice is good… but do we really need 50 different portfolio management systems today?