If you saw $500 on the ground, would you pick it up?
In late 2008, most investment firms were focused on getting lean and surviving a heretofore unprecedented economic downturn. Because we specialize in working with these firms, we wanted to use our core expertise to help create efficiencies and save them money. We ran an ad in the Advent User Group (AUG) newsletter offering two free hours of consulting. It wasn’t a completely altruistic idea; we figured we would gain some long-term clients for the effort.
The ad was run, and I honestly thought we’d get some calls. Surely there were investment firms that would want FREE consulting, right? We typically receive calls from investment professionals across the nation inquiring about our products and services, but not one person called to inquire about the two hours of free consulting.
It is possible that users were so busy that they weren’t reading the newsletter. Perhaps the ad, which was kind of ugly, didn’t inspire firms to call us. In all likelihood, this ad failed to generate interest because of its target market: investment advisors and their trusted professionals.
I have worked with these folks for over twenty years and understand who they are, so perhaps I should have known better. The typical investment advisor is a conservative skeptic who believes you get what you pay for. In their view, our offer of free consulting must have appeared hollow or even insincere. Investment firms are stereotypically risk-averse regarding their back office operations. For these reasons, many investment advisors are victims of a negative feedback loop. 
Software companies are able to continually increase fees without making dramatic technology improvements because, by and large, investment advisors are resistant to change and afraid to try anything else. This inertia obstructs new firms from competing with the established firms since the market share they need to capture is engaged in agreements that investment advisors may not think entirely reasonable, but acceptable for now.
Advent Software, for example, consistently raises the cost of Axys support and focuses on compatibility and bug fixes without implementing large-scale feature additions to further merit such sustained cost increases. Advent could change this with a little effort, but historically it hasn’t been part of their agenda. Nevertheless, I still believe that Axys is the most cost-efficient and feature-rich portfolio management system available to investment advisors today.
Axys users need to remember that the name of the company is Advent Software, not Axys Software. They are a for-profit business, and that is a good thing for their customers in the long-term. From my limited knowledge and perspective, it does seem like a grossly disproportionate amount of Advent’s research and development efforts go into things that are not related to Axys. For an Axys user paying annual maintenance fees which hypothetically go to support, research and development of their product, this is problematic – especially if they rarely call Advent for support.
Advent has invested significant resources in APX, an enterprise product offering which is a possible upgrade for Axys users. In reality, APX currently doesn’t make sense for the vast majority of non-enterprise Axys users. In May, Advent finalized a deal to buy Black Diamond for $73M. Three months later, just how or whether Black Diamond will be integrated into Advent’s other product offerings remains to be seen.
Advent is not alone. Earlier this year I had a call from a prospective customer that was frustrated by Satuit’s pricing plan. After paying roughly $2K per year to use Packman to package their reports and host statements on their portal, they were told that pricing would increase 300% over the next three years. If I made that announcement, I know what would happen to my clients.
To be fair to Satuit, they gave their client a year’s notice of the increase – enough time for them to find and implement a suitable alternative. We have experience selling competing products, and we feel that Satuit’s product, originally from Lync Consulting, had been underpriced at $2K per year. Unfortunately, their client got used to paying $2K a year and didn’t feel like they could stomach more than $6K per year, even though the cost was scheduled to increase gradually. Regardless, my advice to this prospective client was to stick with Satuit for now, because the cost of switching from their solution to our solution would outweigh any benefit in terms of cost over three years.
Rational product pricing takes competition, expectations, value, ongoing support and profitability into account, but don’t expect to make any sense of pricing in the industry where “greed is good.” Investment advisors that really want to change the status quo should follow Gandhi’s advice: “Be the change you want to see in the world.” In order to make it happen, they need to be willing to take on a certain level of risk. If the last twenty years is any indication of what we can expect, don’t hold your breath on this one.
Most investment advisors will continue to get what they pay for in the foreseeable future.
About the Author:
Kevin Shea is President of InfoSystems Integrated, Inc. (ISI); ISI provides a wide variety of outsourced IT solutions to investment advisors nationwide. For details, please visit isitc.com or contact Kevin Shea via phone at 617-720-3400 x202 or e-mail atkshea@isitc.com.