Last month, Archway Technology Partners acquired WealthTouch Holdings – a move which some industry executives anticipate is the start of continued consolidation in the client reporting space.

Last month, a US leader in private wealth reporting - based on aggregated value of accounts - was created when Archway Technology Partners acquired WealthTouch Holdings – a move which some industry executives anticipate is the start of continued consolidation in the client reporting space.

The topic of client reporting has attracted considerable industry attention in recent months and years. In 2012, a study by Family Office Exchange found that 80 per cent of family offices provide their clients with a quarterly financial report, but that the task of doing so consumes almost a third of the average family office’s time.

Meanwhile, clients are increasingly demanding greater control over their wealth and, crucially, are looking for “perfect, error-free data,” said Rob Fiore, president and chief executive of Private Client Resources, the data aggregation and performance reporting specialist. “Businesses must do this economically without diminishing the client experience,” Fiore said.

And, in one recent move, Archway, the Indianapolis, IN-based provider of software products and outsourced services to the investment and private wealth management sectors, acquired Denver, CO-headquartered WealthTouch Holdings, which specializes in investment reporting services for the ultra high net worth community.

“We have entertained the idea of being more acquisitive in how we go about growing the business for a couple of years,” said Jason Brown, founder and chief executive of Archway. 

Deal details

Combined, Archway and WealthTouch have nearly $200 billion in assets under reporting, with the capabilities to serve “the full spectrum” of the private wealth market. Current plans are that consolidation efforts will be largely complete by the end of August, Brown said.

Although the deal was a full acquisition – the financial terms of which have not been disclosed – Brown said Archway is going to treat it as organic growth and “take the best of both” firms.

While everything offered by WealthTouch and Archway will still be available going forward, their products and services are going to be “much more tightly coupled,” he said. “We want to continue to have that one-brand feel in the company.”

Brown added that a lot of thought has gone into ensuring that WealthTouch personnel feel part of Archway and that the Denver office isn’t perceived as a separate branch. Indeed, it has been widely recognized by industry leaders that culture plays an important role in the running of any business – for both clients and staff – and so ensuring minimal disruption (and providing reassurance) during a merger or acquisition is crucial.

Catalyst

Craig Pearson, former president of WealthTouch, breaks down the current client reporting market into legacy providers such as Archway/WealthTouch, Private Client Resources and Rockefeller's Rockit – each with perhaps more outdated technology but domain expertise – and newer entrants such as Addepar, CircleBlack and ClearServe, which have modern technology but, naturally, lack domain expertise.

Pearson has left WealthTouch and has launched a new start up called Private Wealth Systems - more details to follow in the new year.

“As in every case with an emerging growth segment the old established firms and the young startups are fighting for the dominant leadership role in determining how the industry will evolve as it matures,” he said. “Also, as with any fragmented industry, consolidation is a driving force towards maturation as established and startups alike attempt to quickly build scale, capture pricing power, and achieve an economic model that is not only sustainable but also allows for reinvestment that is required to drive true transformative innovation.”

Industry consolidation creates a “barbell effect” where on one end of the market there will be a few larger players, he said, adding that this will create room for startups that will leverage cutting-edge technology to build lower cost, “best-in-class” platforms. “Both sides of the barbell will be fighting for a dominant position.”

Pearson predicts that the eyes of the market will be focused on investment reporting driving the next phase of financial empowerment for those who manage and control complex wealth. “It’s very exciting to be leading this industry,” he said.

Client impact

Arguably, the biggest question around all of this is: will further consolidation be good for end-clients?

As is the case with any acquisition – in any industry – clients may at first feel unsettled by the idea, but that usually subsides, said Thomas Livergood, chief executive of the Family Wealth Alliance.

Likewise, Brown acknowledged that there is always going to be hesitation. “The reality for our clients and legacy WealthTouch clients is that these types of deals are complicated. But there have been tremendous conversations around security, and we are going to engage with every single client, mapping out a custom approach as regards how they’re going to be brought over to the new platform.”

Asked if he thinks further consolidation could have a potentially negative impact on end-clients and the sector overall, Livergood said he “doesn’t see a downside yet” as the industry is still “too nascent.” He described the Archway/WealthTouch deal as a “very nice marriage,” adding: “We think it benefits the industry as there are currently probably too many players.”

Meanwhile, Fiore believes that what is taking place is natural. “We’re in a competitive market and there are competitive market forces at work,” he said. “The main challenge for companies in this business relates to service offering and economics: how to provide superior services at a competitive price and make a reasonable margin.”

As an example of how the client reporting landscape has become more competitive in recent time, Fiore highlighted that – at his firm PCR – the average cost for service, say, four years ago, was two to three basis points. But “to be competitive today it’s around one to two basis points.”

In the words of Pearson, “we are truly experiencing a period of digital Darwinism, where providers of financial services must either adapt to the digital age or perish.” And he anticipates that the reporting industry is going to be at the forefront of the next phase of financial innovation.