Schwab sues its software partner

Charles Schwab & Co. Inc. has filed a suit against Advent Software Inc. claiming the powerful software company is poised to trample a four-year-old agreement between the two San Francisco companies.

Advent also is trying to squeeze Schwab for a new annual fee of $250,000, according to Schwab.

The lawsuit, filed Thursday with the Superior Court of California in San Francisco, claims that Advent intends to prematurely discontinue servicing an old technology known as “point-to-point,” which links Schwab directly to its advisers.

In the 1997 agreement, which had not been made public, Advent assured Schwab that it would continue servicing point-to-point interfaces in exchange for Schwab’s full cooperation in making its systems compatible with Advent’s new Internet-based technology, Schwab’s suit alleges.

That new technology, known in the industry as ACD (Advent Custodial Data), consolidates account data downloaded from multiple broker-dealers or custodians in Advent computers and then sends it on to advisers who use its Axys software.

Advent’s Axys is one of the two leading portfolio-management software programs used by investment advisers.

Schwab says that the suit was triggered by two communications from Advent that it believes show that Advent is reneging on its promise to service point-to-point through at least 2002.

One is a February letter from Advent to Schwab’s institutional customers stating that “over the year 2001, Advent will retire all modem-based point-to-point interfaces and migrate clients to our Internet-based multicustodian network, Advent Custodial Data.”

Assurances sought

In addition, Advent is “coercing Schwab Institutional customers into converting to ACD by offering limited-time, ACD-subscription-fee discounts if the Schwab customer converts within 30 days of Advent’s offer,” Schwab says in the suit. “Advent’s documents for this offer mislead Schwab Institutional customers into believing that Advent may permissibly discontinue support for the existing interface, and state that this will occur as early as the end of 2001.”

Schwab says that it sent a letter to Advent on Oct. 10 seeking assurances that Advent would continue to support the interface as outlined in the 1997 agreement.

Advent’s letter of response, the suit claims, allowed for “certain continuing commitments.” But it also says that Advent will “honor its contractual commitments” only if Schwab agrees to participate in Advent’s Trusted Network, a service that, like ACD, needs Schwab’s and other broker-dealers’ participation to operate successfully, the suit adds.

Another Advent condition for continuing support of the interface is the payment by Schwab of an annual fee of $250,000, the suit claims.

Advent’s chief financial officer, Irv H. Lichtenwald, downplays the significance of the suit. “I think this is a tempest in a teapot,” he says. “We’ve done a crappy job of communicating.”

Mr. Lichtenwald says the bottom line is that advisers are going to pay the same to get more. “There is zero increase in cost,” he says. “That is what we failed to communicate.”

But a Schwab spokesman says price is not the whole issue. He says some advisers simply may not want their sensitive financial data passing through a third party’s hands, and that others do not need the added functionality.

Dennis Miller, president of Miller/Russell & Associates Inc. of Phoenix, which has $550 million in assets, is a Schwab adviser and Axys user who has not yet migrated to ACD.

“I am pleased that Schwab has enough interest in the adviser to take this action,” he says.

Scott Van Den Berg, principal with Century Management in Austin, Texas, which has $450 million in assets under management, says he also appreciates the lawsuit because it gives him insight into what’s going on with two of his major service providers. He says he does feel pressure to subscribe to Advent’s ACD service.

“We can’t wait for the last minute for something to come together before being cut off” from the point-to-point interface, he says.

Ward Harris, a managing director with McHenry Consulting Group in Berkeley, Calif., says the lawsuit can be viewed in two very different ways.

Schwab is being supersensitive on behalf of its advisers, the way adults are about their children. Or it might be the rumblings of a far greater war between two powerful public companies trying to expand into each other’s turf.

“It sounds like they’re fighting for [control of] the desktop,” he says. “If you get the desktop, the assets will follow.”