Advent, Schwab compromise and end lawsuit

Two titans of the advisory business have settled an exhausting lawsuit that, albeit short-lived, was characterized by both sides as taking an inordinate amount of time, energy and expense.

In the end, Charles Schwab & Co. Inc. and Advent Software Inc., both of San Francisco, compromised.

“It’s a short-term solution that lets everyone win a little bit,” says Robert Powell, managing director at Acadient Inc., a financial services consulting company in Boston.

At issue was how the two companies intended effectively to control the asset-custody and back-office software needs of advisers. That included how advisers – served by both companies – would receive their daily downloads of information and how Advent could charge for it.

As part of the deal, Advent wins the right to control all the data flowing to Schwab’s Advent customers by Dec. 30, 2004.

At that time, Advent also will discontinue serving those advisers with its point-to-point system.

Buying time

By extending Advent’s point-to-point servicing by 28 more months, Schwab buys time for its Advent-using advisers. They can switch to the Advent Custodial Data system in a more leisurely fashion, or they can pick another provider of back-office software.

In the meantime, Advent has agreed to charge the same for ACD as it does for point-to-point downloads for advisers who use a single custodian. It also agreed to keep its prices consistent for advisers at all other custodians.

Executives from both firms say that perhaps the biggest result of the settlement is the ending of the cold war.

Trust has been restored, and communication between the two companies has been re-established. Both were chastised by advisers for making them feel like children in a custody battle.

Mr. Powell says Schwab advisers are the big winners because the parents are speaking again. But Schwab itself, he says, is the bigger winner.

There are about 1,200 Schwab advisers using Advent back-office software; they represent about half of the $230 billion in assets held by Schwab Institutional.

Schwab filed suit in November, charging that Advent had broken an agreement to continue providing point-to-point service to advisers.

Schwab stepped into the breach in response to complaints from advisers that they were being charged for a service that previously had been largely free.

Advent has slowly backed down since then.

It agreed to simplify its ACD pricing in November. In March, it agreed to extend point-to-point through 2002.

But Advent also has taken steps with Schwab’s rivals that forced its adversary’s hand.

Advent struck a comprehensive deal with TD Waterhouse Group Inc. in February that integrates the vendor’s software with the New York-based asset custodian.

It also allowed Boston’s Fidelity Investments Institutional Brokerage Group to extend point-to-point interfaces to its Advent-using advisers through 2007.

Still, Schwab was also able to reach this settlement without playing the same trump card as Fidelity.

Fidelity is making the account information of its advisers accessible over the Advent Trusted Network.

Advisers share information between firms over the network that allows customers to get a comprehensive view of their accounts.

Schwab, however, continues to stand firm in its refusal to participate in the Trusted Network, which would have been a juicy plum for Advent.

Schwab’s 6,000 advisers and their $230 billion in assets under management represent a vast untapped reservoir of information.

J. Nicholas Georgis, senior vice president of sales services for investment managers for Schwab Institutional, says his firm hasn’t gone to ATN because he sees virtually no demand for it from his advisers.

He adds that he doesn’t see the need to put Advent’s feet to the fire to extend the point-to-point deal through 2007.

Ending the suit was only the second major resolution recently reached by Advent.

Two weeks ago, it closed a deal to purchase Denver’s Techfi Corp. after getting the U.S. Department of Justice to withdraw its objections.

The Schwab-Advent settlement doesn’t encompass Schwab-Techfi customers, and Collin A. Cohen, senior vice president of Advent, says his company is moving those customers to ACD as quickly as possible.