Investing In the Digital Age: How RIAs could start a free-data revolution and why it won't bankrupt the vendors
Data suppliers and software vendors in the investment space are the biggest laggards
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Wealthfront
Portfolio Management System
Top Executive: Andy Rachleff
Peter Giza
Andy,
Having come from the world of open software (OSF at HP) the points you are making are indeed valid. Holding client data hostage is a potentially limiting business model, however several software vendors have made very impressive revenue streams employing this method. Adding credence to this is an entire cottage industry built around data conversions from one platform to another.
One of the biggest issues with making data free is that there are significant costs associated with scrubbing, segmenting, aggregating and delivering data. Altruistically all data sources would make their data available via a common web service or other API. However, unless there is a direct connection between the data provider and a billable transaction, the initial impression is that the ROI isn’t sufficient enough to warrant the expense and that could be true.
Data providers who make it their business to extract, scrub, segment, aggregate and deliver data from many and disparate sources have no way of extracting a fee based on a transaction. Whereas custodians and broker dealers serving RIAs do extract transaction fees which can be correlated to the data provided to the RIA. Therein lies the problem and no matter how you label it, a fee for convenient access or a fee for the data, it is an argument of semantics.
Holding client data hostage in some proprietary data structure is fast becoming untolerated behavior with this industry. Software vendors who make this a practice are finding that they are losing ground. Warning: Shameless Plug. As the CTO of RedBlack Software a rebalancing and trading software vendor, I can state without hesitation that one of our focal points is data be easily accessed with commonly available tools. Hence there is no cost for access just for efficiency and convenience our tools bring.
In closing I think you can expect to see custodians making their data available for low or no cost, but I wouldn’t hold my breath with the big names in data – at least not in the next 12-24 months.
Peter
