Bridging the gap between financial advisors and technology

AdvisorTech takes multi-pronged approach to success in Japan.
Most companies that develop and sell technology solutions for the financial services industry concentrate solely on the technology side of the business. Sometimes an in house development team might be spun off from a bank or asset management company, but the technologists are rarely involved in investment decisions or advice.

One hi-tech company, though, is trying to tackle the industry from both ends. AdvisorTech has developed an on-line network - ATWeb - that gives financial institutions and their customers access to some of the world's leading mutual fund companies. Institutions can take advantage of this "supermarket" of funds with on-line execution and reporting and automated settlement. Or, AdvisorTech also offers consulting and development services for building a customized mutual fund order-taking and settlement system.

This might sound like standard fare for an IT services company, but in one of the markets it serves, AdvisorTech has the whole extent of the investment process covered – from the house-calling investment advisor with his laptop, through to in-house research, partnerships with fund managers and execution and settlement.

“Our proposition in Japan is two fold,” says Dennis P. Clark, senior vice president of sales and marketing. “We either take a direct strategy where one of our advisors is out there communicating with the investing public. Or the second part, a very important one, is what’s basically our application service provider (ASP) model where we are supporting other companies from a technology standpoint.”

Japan focus

AdvisorTech Securities is a licensed broker-dealer in Japan, and has licensed around 200 independent financial advisors to promote products from the many fund managers worldwide with which it has partnerships. These partners include such heavyweights as Fidelity, Goldman Sachs, Invesco, Nomura and State Street, but AdvisorTech is quick to stress that it’s an independent entity.

“We feel that the non-biased, independent approach is a very important part of our philosophy,” says Clark. The company employs experienced investment professionals who focus on researching the managers that run the funds. This research is available through its advisors in the Japanese market, and also to customers of any company that is outsourcing mutual fund trading using ATWeb.

“The fact that we’re dealing with advisors directly also gives us a competitive advantage over other technologists designing software they think people should use,” says Clark. “Because of our experience at the front end we know what the user wants and then wrote our software from that.”

The advice that AdvisorTech’s staff dispense – that investors should be diversified, that they should stay invested for the long term and shy away from a trading mentality and to be successful in reaching their financial goals – is also reflected in a book written by founder and CEO Tim McCarthy, which is currently one of the top selling business titles in Japan.

“It takes a concentrated and specific approach to succeed in Japan,” says Clark.

Close relationship

AdvisorTech received $125 million in second round funding in June, and since then has been looking at extending the client base for its ASP services, as well as continuing its independent advisory business in Japan. The company has this year been hired in a consulting role by Nikko Securities, and Clark says it has had a lot of interest in ATWeb from regional banks in Japan who are looking at offering more investment opportunities to their customers. But AdvisorTech’s biggest ASP deal to date is with Good Morning Securities, South Korea’s 6th largest broker.

AdvisorTech has the contract for providing Good Morning with wrap investment management software, as well as advice on what external funds to use. Wrap accounts are individually tailored by brokers for mostly high net worth individuals and institutional investors. The accounts are a cross between a share portfolio and a mutual fund. Assets are allocated in mainly equities, bonds and mutual funds. How the asset is allocated defines the nature of the account. But unlike mutual funds, wrap investors actually own the underlying asset in the account. 

The fact that this deal was done isn’t so surprising when you consider that McCarthy also happens to be chairman of the Korean broker. At the end of 1998 McCarthy was involved, together with Hambrecht & Quist, A.P., in the private equity led takeover and recapitalization of Good Morning Securities, formerly Ssangyong Securities.

While this high-profile foreign takeover, the first of its kind in South Korea, rehabilitated the broker, leading it to the upper echelons of Korean securities firms, the Korean market as a whole hasn’t enjoyed the same upward trend of late.

“We don’t know yet know how the individual investor feels,” says Clark of recent market performance in South Korea. “Because unlike in Japan, we don’t do a lot of research on the investing consumer there,” 

“But if an investor were brave enough, or smart enough, to enter into the market or stay in market, I think this particular product we support with Good Morning is the most apropos in that it’s a diversified long-term investing proposition vs. the rather single product or single stock type trading that’s probably been responsible for most of the retail volume in Korea to date.”