by Rebecca King
For advisory practices that manage client assets and need to rebalance on an ongoing basis, finding the right rebalancing tools can be essential. Depending on the size of your practice and the software solutions you already have in place, adding rebalancing software to your technology suite and budget can prove daunting.
The solution to this challenge is to start with a clear understanding of your business needs and expectations. Then, consider which of four different categories of portfolio rebalancing solutions available makes the most sense. At that point, you can confidently evaluate specific solutions and choose the best one for your practice.
Identify Your Business Needs
When you think about your rebalancing process, what are your biggest pain points? Perhaps the process takes too much time? Maybe you are not able to provide effective client reporting on the changes you've made? If employees are involved in the rebalancing process, ask for their feedback as well; they may have a unique perspective you'll want to consider to make the best decision.
Now ask yourself how you would ideally like to have the rebalancing process work for your practice. Envision the process from start to finish, and identify what you'd like your practice to accomplish, what you'd like the software to handle and what you'd like the vendor, consultant or external firm to provide.
After you have determined your needs and expectations, prioritize the list to your top three to five. Keep these needs and expectations in mind as you evaluate your strategy and your adoption plan. Use them as a filter to make sure you are focusing on the areas most important to you; don't get distracted with cool features that don't make sense for you.
Choose Your Strategy
The portfolio rebalancing landscape is constantly evolving. Within the current environment, there are four key resources to help with your portfolio rebalancing needs.
Tools provided by custodians or B-Ds. Many custodians and broker-dealers have enhanced their technology offerings to advisers, including providing integrated rebalancing tools. Give your custodian and/or broker-dealer a call and ask about the capabilities they're currently offering as well as any plans they have in the near future to release new rebalancing tools. You may find that adjusting your internal process to better leverage these tools will give you the additional time, productivity or reporting features you seek.
Rebalancing in your portfolio management solution. In many cases, portfolio management software offers built-in rebalancing tools. If you already have a portfolio management solution, get up to speed on its rebalancing capabilities. If you haven't been through a recent review of the software, call your vendor or check for online tutorials that explain the newest features in this category.
If you don't have portfolio management software or are considering replacing your current solution, check out the asset allocation/rebalancing scores revealed in the FPA-ActiFi report on portfolio management. AssetBook, BlackDiamond, FinFolio, IAS (Solution 360), Orion and Schwab PortfolioCenter all scored high on:
- Generating rebalancing reports that list transactions needed for portfolio realignment
- Integration with trading systems to automatically transmit orders based on rebalancing
- Rebalancing triggers including upper/lower threshold limits, market moves
If automating these activities will solve your business needs, you may not need to look beyond the software you already own.
Portfolio rebalancing software. For practices with more sophisticated rebalancing needs, investigate the myriad rebalancing solutions available. Refer to the FPA-ActiFi report on rebalancing solutions (coming soon) to get a third-party review of key vendors in this space.
Outsourcing. If your practice vision includes offering rebalancing services to clients but not having to deal with all the logistics, you may want to evaluate outsourcing some or all of the process. In some cases your existing CRM, financial planning software or other technology vendor may offer this solution for an additional fee.
Of course, you don't have to choose only one strategy in isolation. Depending on your needs, a combination of strategies may prove to be the best option.
With a clear idea of your business needs, your strategy and the adoption plan in hand (see sidebar), you will be able to quickly eliminate the solutions that do not meet your needs and only evaluate those that look promising. By comparing functionality, pricing, support and test driving for usability, you will be able to choose a solution that will deliver results.
Rebecca King is assistant director of research and business development at FPA. Contact her at Rebecca.King@FPAnet.org.
TD Ameritrade participated as a custodian respondent in the study. TD Ameritrade is separate and not affiliated with Financial Planning Association or ActiFi and is not responsible for the policies or services of any third party. In no instance should the listing of a third party be construed as a recommendation or endorsement by TD Ameritrade.
Portfolio Rebalancing Software Adoption Plan
To create your own portfolio rebalancing software adoption plan, download the template at www.FPAnet.org/PracticeManagement/Technology or answer these questions while reading this article.
What do you expect to gain? Translate your business pain points and vision for your rebalancing process into a short list of benefits you want to receive. Make sure the benefits are specific. For example, list "save 10 staff hours a week" rather than simply "saving time." This will help you better evaluate the return on investment for any given solution.
What functionality do you need in order to gain the benefits you want? After you have identified the specific objectives, outline the specific functions you need. If you want to save time, think about the most time-consuming elements of the process and outline what you need a software or vendor to provide to cut down or completely eliminate the amount of time spent on those activities.
Which processes may change? Sometimes you already have a process in place that you will fully or partially replace with the solution. Other times you may be creating a completely new process, and sometimes the use of the software will force a change in another process you have established.
How will you measure adoption of the software? A universal challenge of adopting new software is implementing and using it effectively. Before the software is chosen or installed, identify milestones and metrics for how you will measure your use of the software. Outline how staff will be rewarded for effective use of the software.
Who will be in charge of evaluating and improving your use of the software? It is important for one individual to be responsible for evaluating the overall use of the software as outlined in your plan along with identifying new or improved use of the software based on unexplored functionality or new releases/improvements.
What kind of security and/or security roles do you need? For example, do you need certain staff members to be able to only view information but not edit it? Clearly outline those needs on paper so you can eliminate any solutions that do not provide the level of security you need.
Learn more about the FPA-ActiFi Adviser Technology Report series at www.FPAnet.org/AdviserTechnologySeries. Six reports are available now for download, and portfolio rebalancing is coming soon. FPA members receive these valuable reports free of charge, courtesy of TD Ameritrade Institutional.