Portfolio rebalancing can be a time consuming and largely inefficient task if attempted manually. That is why portfolio management software and rebalancing solutions have become so popular. However, not all solutions will necessarily fit the needs of a particular financial advisory firm, depending on a number of factors. As an example, Envestnet Tamarac (www.tamaracinc.com) is a well-known, highly efficient solution for portfolio management and rebalancing. But its sophistication (and corresponding price) may or may not fit a firm, particularly a smaller firm with more modest needs. The truth is, in the world of financial advisors, there is no one-size-fits-all approach. Different tools are needed for different circumstances. It is important to evaluate such tools based on the specific needs and budgetary constraints of the financial practice.
For those firms with less sophisticated needs and/or budget constraints, there are two relatively new solutions worthy of checking out and one firm that has been around awhile that deserves a second look. The first of these is a company called RedBlack (www.redblacksoftware.com). RedBlack touts itself as rebalancing simplified. It offers a wide selection of import sources, such as TD Ameritrade’s Veo platform, Fidelity, Schwab, Advent and many others. It recently announced an integration with Scottrade as well. The platform has a dashboard feel with account breakdowns, account value distributions, recent filings and reminders, such as expired restrictions.
RedBlack has the capability of rebalancing across multiple accounts, pulling trade logs for verification purposes and monitoring cash balances. In addition to pulling data from Veo, it can also export data back to Veo for monitoring. It has comprehensive trade block reconciliation features and the software can rebalance between tax-deferred and taxable accounts automatically on a global percentage basis. RedBlack can also create an IPS with data imported from such financial planning sources as MoneyGuidePro (www.moneyguidepro.com).
Financial models can be created in one of three ways: 1) by asset class, 2) by security type or 3) by a model of models approach. This provides a high level of flexibility in creating and managing investment models for clients.
RedBlack can run household drift reports to see who is out of tolerance (based on standards established by the financial advisor) and then set up work flows to do the rebalancing. And while there is a lot more detail to what it can do, it is fairly intuitive software with an easy-to-understand desktop interface. Jeff Comstock, director of client relations at RedBlack, says the price is based on a number of factors, including the number of users, the size of the firm’s AUM and what modules may be selected. With RedBlack, the financial advisor can select the specific modules that he or she may need and save money over those solutions that have an all-or-nothing approach.
The second solution is Trade Warrior (www.tradewarriorsoftware.com). One of the most unique of the newer solutions, Trade Warrior touts itself as an easy-to-use, industry-tested platform that can save financial advisors hundreds of hours a year. Trade Warrior’s CEO, Damon Deru, was asked what was lacking in the existing platforms that compelled Trade Warrior to be developed. His answer was “cost” and “usability.” Many platforms offer great features, but may also charge higher fees to use those features. The concept at Trade Warrior was to develop a platform that is quick to learn, easy to use and flexible enough to scale to the needs of different sizes of financial practices. Deru says the platform was designed to look and feel like Microsoft Office. Like RedBlack, Trade Warrior has a fairly long list of import sources, including Schwab and Schwab’s Portfolio Center, Trade PMR, AssetBook, Fidelity, Morningstar Office, Pershing, Scottrade, TD Ameritrade and many others.
There is considerable flexibility in grouping households and portfolios. There is also flexibility in how you move accounts: by groups or just one fund, for instance. The financial advisor can select multiple securities per class or create a model of models approach.
What may be the most compelling reason to check them out is the cost. Trade Warrior has no setup fees and offers a 60-day risk-free trial period. The software subscription is based on a base fee plus a small basis points add-on percentage that gets lower as a firm crosses $100 million in AUM and declines again at over $200 million in AUM. There is even a lower basis points threshold for firms with $1 billion in assets. Financial advisory firms can load the software on as many computers as they like.
The platform is capable of many tasks, including tax-loss harvesting. It also has an intuitive message area, with warnings and other reminders. The rebalance results screen is fairly simple, and the alerts screen can save hours in researching which firms are out of balance. Another interesting aspect of Trade Warrior is its ability to handle multiple custodians, and the firm says it may be introducing a user permissions level function next year.
The third solution is Total Rebalance Expert (www.trxpert.com). This has been around for a while, but there are new features and functionality that could spur a financial advisor to take another look at the platform. TRX recently announced its integration with Orion Advisor Services (www.orionadvisor.com), a packaged product, essentially, that includes the TRX rebalancing software. Additionally, the firm has added a number of new import sources, the latest being Advent.
TRX is an easy-to-use, flexible and efficient rebalancing solution. It is best known for its focus on tax efficiencies in the rebalancing of portfolios. However, it has many other features that can significantly increase the productivity and capacity of a financial advisor’s practice. With TRX, a financial practitioner can maintain an unlimited number of positions per asset class. It is also capable of pre-setting preferred buys for each asset class and models can be built at the security level, the account level or the household level. Portfolios can be constructed based on asset class and sub-class with a mix of different types of securities such as mutual funds and stocks in the same class. This translates into a high level of customization to fit the needs of clients. TRX also offers a risk-free, 90-day trial period.
With apologies to all the other rebalancing solutions, these three tools (RedBlack, Trade Warrior and TRX) serve the needs of financial firms with unique sets of needs. As with any software, it is important to not only match up the solution with the needs of the practice, but also to investigate its integration capabilities with other solutions, systems or software being used by those firms to achieve the highest levels of efficiency, productivity and capacity.
David L. Lawrence is Founder and President of EfficientPractice.com, a consulting firm that provides financial practices, broker-dealers and independent firms with comprehensive, profit-driven efficiency consulting and resources. He is also the author of The Efficient Practice: Transform and Optimize Your Financial Practice for Greater Profits and Success, available at Wiley.com and other book retailers.