[Kitces.com] The Latest In Financial #AdvisorTech (January 2024)

Income Lab Selects BridgeFT’s Wealthtech API To Aggregate Multi-Custodial Data

Most technology used by advisors today is connected in some way or another to the portfolio that the advisor is managing on the client’s behalf: Alongside the actual portfolio management software itself that handles trading and rebalancing, there are platforms like performance reporting software that calculate performance based on daily balances and cash flows; billing software that calculates the advisor’s ongoing fees and generates billing files to send to custodians; and financial planning software that turns today’s portfolio balance and asset allocation into projections of future scenarios. But in order for any of this software to run efficiently, it needs to have access to automatically-updating data on the client’s portfolio.

At this point, all of the major RIA custodial platforms have built some version of an API that software providers can integrate with for access to the data that they need. But there’s a catch: There’s no single set of standards used across all custodians for providing access to client data; rather, each one has its own formats and data standards, and perhaps most challengingly, each custodian has what can often be a lengthy due diligence process that a software provider must complete before being granted access to the custodian’s API. Multiplied across dozens of custodial platforms, the result is that trying to connect to each custodian individually would cause new technology vendors to endure a long wait in due diligence purgatory before they can start to integrate the client data that makes their products work – a time during which they essentially can’t sell their product and start generating revenue, requiring cash infusions from the company’s founders and/or outside investors to keep paying its employees until the product can actually be sold.

To streamline the process of integrating with custodial data, software startups have tended to migrate towards data “hubs”, which can provide access to data from multiple sources, and which save valuable time for the software provider by only requiring a single point of connection (and thus a single due diligence process) while giving access to multiple data sources at once. In practice, these hubs tended to be platforms from which advisors ran much of their practices: Portfolio management system platforms (e.g., Orion, Black Diamond, or Tamarac) which already pulled in custodial data themselves and could thus serve as a useful connection point for a third-party vendor to tie into like running a new electrical line from an existing outlet on the wall; as well as some of the most-used custodians themselves, e.g., TDAmeritrade and its Veo platform, which long had a reputation of being a hub that was easy to integrate with as a software provider.

In more recent years, however, some of the most popular data connection hubs have lost their utility to software providers. As large portfolio management platforms have become increasingly “all-in-one” with their own self-integrating software suites, many of those platforms now have their own solutions that compete directly with outside software, making it less appealing for those vendors to build and promote integrations with an all-in-one platform that aims to ultimately make them redundant. And following TDAmeritrade’s acquisition by Charles Schwab, the Veo platform ceased to exist and data vendors were migrated into Schwab’s Advisor Center, which has a lengthier process (and therefore a longer waiting list) for new integration partners than its predecessor at TDAmeritrade. And so for technology providers, there has been an increasing need for new sources of custodial data, as the old channels have become less reliable and the cumbersome process of building and maintaining point-to-point connections with each individual custodian remains as daunting as ever.

In that vein, it’s notable that retirement planning software startup Income Lab recently announced an integration with BridgeFT that will facilitate access to major custodian and broker-dealer platforms through BridgeFT’s WealthTech API hubBridgeFT’s roots were as a portfolio accounting and performance reporting solution in competition with the higher-priced Orion, Black Diamand, and Tamarac all-in-one platforms, for which it needed to build its own data feeds with custodians and convert the multiple streams of data into a single standardized format. Which as BridgeFT eventually discovered was, when provided to other software tools, a value proposition in and of itself – and perhaps represented a greater opportunity than being one of 50 different competing portfolio management solutions on the market.

And so in providing multi-custodian data access to other software providers, BridgeFT is stepping in to fill the void left by the loss of Veo as well as by the increasingly “walled-garden” approach of the biggest portfolio management platforms. Which perhaps has its biggest impact for newer technology firms in their startup phase: Rather than building their own integrations to all of the individual custodial platforms, a new technology company can simply buy access to BridgeFT’s feed, with BridgeFT handling the work of maintaining the connections and standardizing different data formats. Which ultimately can serve to greatly expedite how quickly the new software provider can get access to custodial data (since it no longer needs to go through a separate due diligence process for each custodial platform before accessing its data), while also drastically reducing the work needed to maintain those connections (and allowing developers and engineers to focus on building and refining the software itself, rather than sinking time and energy into simply ensuring a reliable data feed).

From BridgeFT’s perspective, then, the announcement seems to show that the company is positioned well for growth from its data integration business: as more and more technology vendors come into the market to serve advisors, the demand for access custodial data doesn’t seem likely to slow down anytime soon.

From the industry perspective, the question is whether BridgeFT can effectively fill the void as the go-to API “hub” for new technology startups looking to quickly get access to custodial data. Which would obviously be good for its own business model, but more broadly, could also increase the pace of innovation in the AdvisorTech space at large, by eliminating many of the roadblocks that new technology firms face in connecting to multi-custodian data and consequently reducing the time and startup capital needed to get new software products to market.