Can Sheryl Rowling Change Morningstar? Hot

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It’s safe to assume that Sheryl Rowling, a CPA financial planner, joined the ranks of the ultra-high net worth by selling her tax-rebalancing software firm, Total Reblance Expert, to Morningstar on November 2. Rowling, recipient of A4A’s 2012 Person of The Year Award, is a great entrepreneur and a leader among independent professionals in the financial advice industry. But what does the sale of her software company mean to independent advisors?

Full Disclosure

On December 17, 2012, Sheryl Rowling won A4A’s, Person Of The Year Award, for her dedication to making the financial advice profession better. It’s one of just two “annual” awards A4A has given in seven years. (John Norwood won the other one, for pioneering portfolio management software development for 30 years and his recent work enabling GIPS-compliant reporting in small RIAs.)

Rowling, who turns 60 in a few weeks, earned the Personal Financial Specialist (PFS) designation, for CPA financial planners, nearly 30 years ago. Rowling owns an independent RIA in San Diegso with $250 million under management.

TRX was a natural outgrowth of her practice. As a CPA, she recognized the importance of automating tax efficiency of investments. So Rowling developed a rules-based engine to automate the labor-intensive calculations optimizing investments for after-tax returns in client portfolios of her RIA. 

A4A singled out Rowling for an award after TRX integrated with multiple portfolio performance reporting applications used by RIAs. Initially, TRX only worked with PortfolioCenter, which was used by Rowling’s wealth management firm. But once TRX gained traction, Rowling quickly added interfaces. She enabled tax-management of portfolios for users of Black Diamond, FinFolio, Orion, Advent Axys and Morningstar Office.

Rowling helped invent a new category of software for professionals. Until TRX, tax rebalancing apps were offered by custodians. Rowling made it more affordable for lots of independent advisors to automate tax management of securities, which is an excellent way of adding a point or two annually to returns. Tax-sensitive investing is a competitive advantage for professionals, and Rowling built a solution that worked across a range of portfolio reporting apps.

Rowling was very surprised by the recognition from A4A. Shortly afterward, Rowling became a sponsor and regular editorial contributor on A4A. She pays to advertise TRX on A4A in banner ads and TRX writes a blog on A4A. Rowling and I became friends, speak once a quarter and we would get together for dinner a few times a year.

Sale To Morningstar
On November 1, Rowling called with big news: She just sold TRX to Morningstar. I was thrilled for her. What an achievement! Rowling couldn’t legally disclose how much she was paid and I quickly stopped asking. I am sure it was many millions. Good for Sheryl Way to go!

But the sale raises a big question: Morningstar, a publicly-held company, now owns a software firm relied upon for tax rebalancing by hundreds and hundreds of RIAs using a range of competing portfolio reporting applications. Will the enlightened integration approach that led me to recognize Sheryl Rowling four years ago be embraced by Morningstar? The verdict is still out but there are encouraging signs. In fact, it could signal a major shift at Morningstar.

Total Portfolio Expert Spinoff

In one encouraging sign, Rowling, as part of the sale to Morningstar, divested herself of a portfolio management software formerly known as PowerAdvisor, which was controlled by Cornerstone Revolutions Inc., a company with a storied past.

Rowling had acquired PowerAdvisor, about two years ago and renamed it Total Portfolio Expert. Rowling’s acquisition of PowerAdvisor was ingenious, and spinning it off could make her a legend in the financial advisor technology business.

PowerAdvisor started up about 16 years ago, and was initially hailed by practice management gurus in the trade press. Unfortunately, the company never lived up to its press. Over the past 15 years, PowerAdvisor struggled and went through a few owners and many management changes. Two years ago, its owner planned to shutter its doors. Sheryl Rowling saw it as an opportunity.  

Total Portfolio Expert Is Born

Rowling acquired the struggling portfolio reporting software company on very favorable terms. My guess is she agreed to assume its liabilities, pay its employees and keep its doors open. The company had been cash-drain to its owners and a headache to manage. To Rowling, however, PowerAdvisor’s portfolio accounting software was a valuable asset.

PowerAdvisor presented Rowling with a way to automate delivering tax-sensitive investment advice seamlessly end to end. Rowling rebranded PowerAdvisor as Total Portfolio Expert, TPX, and would integrate TRX’s rebalancing functions with TPX’s portfolio accounting system.

Rowling’s plan for TPX was to capitalize on the good brand she had built for TRX and sell it as a package. PowerAdvisor, which had been on the brink of closing its doors two years ago, would suddenly compete with Tamarac, which is owned by EnvestNet. Rowling was taking a nearly worthless portfolio accounting company and making it into a competitor with a dominant tech tool owned by one of the financial services industry’s major players. It was brilliant!

Consolidation Means Less Competition

The sale of Rowling’s technology company to Morningstar threatened to put the kibosh on the entire plan for transformation of TPX. Why would Morningstar, which makes a popular portfolio reporting software, want to invest in TPX? Morningstar was acquiring a rebalancing application to integrate with its portfolio accounting system, Morningstar Office. Why would Morningstar want to keep TPX alive?

Advisors have seen small tech companies get killed or swallowed by giants many times before. In a classic case, when Advent bought TechFi in 2002, it shut down TechFi’s software and kept its CEO from developing portfolio software for five years. Would TPX, which held so much promise as an integrated rebalancing and portfolio reporting platform for professionals like Rowling, suffer the same fate? Would the 100 firms using PowerAdvisor be left dependent on a portfolio software with no future?

Rowling may have found a way to do the right thing for everyone, which really is an amazing business feat.

TPX is now 100% controlled by Andrew Kehoe, who started working at Cornerstone Revolutions in 2006 as an account manager. Kehoe worked his way up the ranks over the last decade to run marketing. In November 2015, Rowling named Keohoe CEO of TPX, as part of a plan to spin off the portfolio reporting software company following the acquisition of TRX by Morningstar.

Rowling Speaks About TPX’s Future

“When I was selling the company (TRX), looking at both sides of business, it didn’t make sense to sell the TPX side because it competed with Morningstar,” Rowling says. “That would not have been good for anyone long-term.”

“TPX has a large group of loyal clients that love the program, and my mindset in doing anything was to make sure I took care of clients and employees,” Rowling says. “I had options about what to do with the company and the best option was to go with Andrew, who was longest tenured employee, and who knows the software and clients inside out, and who has great ideas for moving forward.”

“One of my main goals was to stabilize the company financially because, when I took it over, it was on verge of shutting its doors,” says Rowling. “I did that and got things working very well, and the company is in great shape, and I see a bright future for the company under Andrew’s leadership.”

Rowling says TPX will continue to have use of TRX’s rebalancing engine, which is an amazing assurance to TPX and its users. To be clear, even though Morningstar controls TRX, the commitments made to TPX will be honored. “Yes there is commitment to continuing to make TRX an integration partner with PowerAdvisor,” Rowling says. Rowling perhaps deserves the A4A’s 2015 Person of the Year Award!

Rowling found a way to do what was right for TPX’s 100 RIA clients, who otherwise could have been left adrift or forced to convert to Morningstar’s portfolio application. She also honored her commitment to the employees of TPX. She did not allow the acquisition of TRX to come at the expense of commitments she made to people depending on TPX’s success.  She also honored a commitment to me.

TPX’s Client Portal

Rowling’s plan to make TPX an integrated platform for rebalancing and reporting lined up well with the client portal from Advisor Products, my advisor marketing-technology company. TPX’s integration into the AdvisorVault Client Portal, which has been planned for months, is expected to be launched early in 2016.

Will Rowling Influence Morningstar?

I told Rowling I was skeptical about whether she would find Morningstar very enlightened about coopetition. Many advisors have told me they felt like Morningstar was trying to control their entire desktop. Rowling says Morningstar, in acquiring her company, is signaling a willingness to open integrations with more advisor software vendors. 

“One of the reasons I went with Morningstar, in addition to thinking highly of company, is they are committed to supporting all of the integrations,” says Rowling. “I saw evidence of that with Morningstar’s acquisition of ByAllAccounts. That was important to me. It is also important to Morningstar to be able to grow opportunities with TRX and not just Morningstar Office.”


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