I did a post at the beginning of the year where I laid out the pricing models of all the current portfolio management software. Something that struck me then, and has continued bugging me, is the high cost of Schwab and Advent’s systems. They start at $8k and $10k respectively.

Techfi started out charging $2k and reluctantly raised our price to $3k in our last year or so. At the time (if memory serves) Advent had an entry-level product for around $2k and Schwab’s starting point was about $3k. I’ve been stumped trying to figure out how the price could have jumped so dramatically in just five years. Had it only been low because of pressure from Techfi? Well apparently Schwab has seen the error of their ways and is dropping the price on Portfolio Center.

From the article:

Schwab Performance Technologies Inc. is waiving the $10,000 license charge for its PortfolioCenter portfolio accounting software for advisers with 50 or fewer accounts. Instead, these advisers will pay a flat $3,000 annual maintenance fee ($2,500 for Schwab custody customers), not the $10,000 licensing charge plus the $2,000 annual maintenance fee paid by other PortfolioCenter licensees.

I know plenty of advisors with 50+ accounts who still can’t afford $10,000 for software, and if I only had 51 accounts, I’d fire one my clients to avoid paying a five-figure licensing fee. But at least Schwab is moving in the right direction. I actually sympathize with them–my Techfi experience convinced me that $2,000 is too low for advisor software.

It’s not the software itself that’s the problem, it’s the fact that every single one of these portfolio management vendors offers unlimited technical support. I’ve long thought that if portfolio management companies adopted a pay-as-you-go software model, they would dramatically reduce the load on their support departments. The “unlimited support” philosophy was established back in the pre-Windows days and it continues to linger.

When I was hired to do tech support for dbCAMS+, we were still writing our own printer drivers. With such a small client base, it was virtually impossible to shake all the bugs out of the software. And you can’t ask clients pay for the technical support when virtually every call is to report a software bug.

But times have changed. Now the heavy lifting is done for us. The only tricky thing in portfolio management software now-a-days is the custodial interfaces. And if you adopt modern testing methods you can lock those down tight enough where they’re not a problem. There’s a simple development methodology called test-driven development that involves writing hundreds of mini, automated unit tests that test every possible combination of your code.

Techfi had a unit testing system where we ran an individual automated test for every unique line of an interface file that we saw. We started building up tests until it was virtually impossible to break the interfaces. Once we had those test scripts in place, it was amazing how difficult it was to fix an interface bug without breaking at *least* one other interface test. You had to try multiple changes before you’d get one that both fixed the problem and played well with your older test scripts. No wonder the interfaces had been so flaky!

But I digress. My point is that if portfolio management companies stop offering unlimited technical support, they should be able to dramatically cut the price of the software. They should charge, say, $100 per incident (phone call). Most users would benefit by seeing their overall costs go down, and the companies would benefit when their call volume plummeted. It’s always the extremely needy 10% of your clients that eat up 90% of your support time. We had people call us *every* time they printed reports. Why wouldn’t they? It’s free!

And God help the company who has an 800 number for support.