Wondering if anybody was paying attention to Fidelity’s WealthCentral announcement? Schwab was and they’re not sitting back to see if Fidelity can pull it off. Schwab’s acquisition of Etelligent Consulting must have been an open secret because I heard about it weeks ago; Etelligent does back office work for RIAs using Schwab PortfolioCenter.

This was a smart acquisition for Schwab for many reasons:

1. If I were Schwab, I’d be a bit uncomfortable having a third party vendor managing such a crucial piece of the client relationship. What if Etelligent took a glean to another portfolio management vendor? All of a sudden, Schwab could find 100 of their customers moving to Advent Axys, which would make it easier for them to switch between custodial providers. Now Schwab fully owns the technology relationship with Etelligent’s clients.
2. Schwab gets an in-house outsourcing capability that it can leverage by offering it to their captive audience of 3,000+ PortfolioCenter users.
3. Schwab adds a big component of the “total advisor desktop” to their platform, better positioning them in respect to Fidelity with their new WealthCentral initiative.

From the press release:

“This strategic acquisition underscores Schwab’s commitment to providing advisors with the tools and support they need to succeed in an industry that is growing at a rapid rate,” said Charles Goldman, executive vice president and head of Schwab Institutional, a leading provider of custodial, operational and trading support for independent RIAs. “Removing back office challenges is especially critical as more advisors leave established firms and strike out on their own. By providing opportunities to outsource administrative tasks, we can help new and established advisors focus on their clients and accelerate the growth of their businesses.”

But Schwab isn’t stopping with Etelligeht. Apparently this is the first of several acquisitions that Schwab’s hoping to make over the next year.An article in Investment News (Schwab Looks To Buy More Technology Vendors) talks about Schwab’s technology acquisition plans for the next year.

From the article:

Schwab Institutional will seek to acquire or partner with more technology vendors, a strategy that follows a doubling in the company’s tech budget in 2007. Last year, the San Francisco-based company spent $55 million on technology, up from $23 million in 2006. Schwab declined to quantify its 2008 tech budget.

In its first acquisition of a technology company in years, Schwab Performance Technologies of Raleigh, N.C., acquired Etelligent Consulting Inc. of Overland Park, Kan., last month, and it is “absolutely” seeking more deals, said Dan Skiles, vice president of technology for Schwab.

The aim is to create a platform that will allow Schwab to attract representatives from wirehouses. To attain that goal, however, the firm needs to offer technology that is as similar as possible to what a wirehouse provides brokers, eliminating the need for servers, maintenance and data downloads.

That will allow Schwab to provide the plug-and-play atmosphere to which wirehouse brokers have grown accustomed, according to financial advisers and industry consultants.

Fascinating. ALthough Schwab positions this as a way to capture breakaway brokers, I think it’s a direct reaction to Fidelity’s announcement of their WealthCentral platform, which lets Fidelity be a full-service technology provider to their reps. I’ll bet Schwab is scared that Fidelity could pull it off and leapfrog their current one-dimensional product offering.

I think this consolidation of technology is going to make many advisors nervous and could even trigger a backlash against the new platforms. Investment News provides anecdotal evidence that this is already happening.

From the same article:

…what is smart for Schwab may not please some advisers, said Ravi Dattani, vice president of Schiavi + Dattani of Wilmington, Del., which manages $250 million in assets. The company uses PortfolioCenter from Raleigh, N.C.-based Schwab Performance Technologies, while the firm’s assets are held at Fidelity Investments of Boston.

“Most advisers don’t want to be attached to somebody who owns everything,” he said. “That’s what makes people feel uncomfortable about dealing with Schwab,” compared with Fidelity and TD Ameritrade Holding Corp. of Omaha, Neb., which have straight outsourcing relationships with tech providers.

From an independence perspective, this may be bad news for advisors. But it could be good news for smaller technology vendors or anybody thinking about starting an advisor-focused technology startup.