A conventional, but customizable, approach to portfolio construction.

In last month's column I discussed Skill Weighted Portfolio, which combines client education, marketing material, portfolio construction tools and other useful features on a Web-based platform to produce a streamlined yet effective investment process. Initially, Skill Weighted Portfolio's core/satellite approach to portfolio construction is what set the program apart in my mind, but the more I though about it the more I became convinced that the work flow features, or the "process," were also very important.

While core/satellite portfolio construction methodologies have their adherents among our colleagues, a majority of readers still use a more traditional approach to portfolio construction. Coincidentally, within days of being introduced to Skill Weighted Portfolio, I was invited to review a Web-based platform that adheres to a traditional investment methodology from Perspective Partners LLC (www.perspectivepartners.com).

On the macro level these two programs seem to share a common philosophy.

Perspective Partners, like Skill Weighted Portfolio, combines a sales/client education process with a portfolio construction/portfolio management process in a Web-based product. The platform includes a workflow overlay that helps the advisor educate a prospect and point out possible weaknesses with the prospect's current situation, which in turn provides the prospect with a reason to become a client.

On a micro level, however, Perspective Partners differs significantly from Skill Weighted Portfolio. For one thing, Perspective Partners takes a more conventional approach to portfolio construction. For another, the Perspective Partners platform is more customizable, which can make it appear to be somewhat more complex.

According to David Snyder, CEO of Perspective Partners, his firm is affiliated with Manning and Napier Advisors Inc. That advisory firm, headquartered in Rochester, N.Y., manages in excess of $8 billion, mostly in separate accounts, for clients in 45 states.

Snyder says that Manning and Napier's "core" reps, those that service the firm's individual high-net-worth clients, have been successfully using a customized version of this Perspective Partners software for some time. "The average rep brings in $50 million in new assets each year," says Snyder. "Close rates are high, and we attribute much of the success to our technology and our process."

Before I walk you through the program, it is worth noting that, to this point, Perspective Partners has been offered only on an enterprise basis. They are looking to enter the independent RIA market in a rather unconventional manner.

In my experience, firms generally offer a "standardized" version of their software for RIAs, while offering "customized" versions for larger, enterprise installations. In other words, software companies tend to "build to spec" for large firms, but in the RIA space they try to figure out what RIAs want, then use the "if we build it they will come" approach.

Perspective Partners is not yet offering a "standardized" RIA version, although it may in the future. Snyder says that his platform is so flexible that it can and will be customized to the needs of smaller groups at a reasonable cost. This means that a small group of like-minded firms, or possibly even one larger firm with, say, 25- 50 advisors, might be able to secure a customized version of the software for a small initial "customization fee" plus a monthly subscription fee, provided that they commit to using the software for a period of time.

Due to the lack of a standardized offering, it is somewhat difficult for me to describe exactly how an independent RIA would use Perspective Partners software, since each reader might end up with a somewhat different version. However, the example that follows should give readers a sense of what Perspective Partners might do for them.

I tried out a "lite" implementation of the platform, one that is currently being used by reps at an insurance company. Other firms, including Manning and Napier, use "extended" versions of the program offering more sophisticated risk assessments, inputs and outputs, as well as additional workflow "steps" (such as a step to prequalify prospects).

I participated in a number of online demonstrations of this "lite" version, and then I tried it out for myself. When advisors enter the program, the first thing they see upon logging in is an "advisor dashboard." The dashboard serves two purposes. First, it allows the advisor to view a snapshot of where all clients are in the planning process. In this case, the process includes only two main steps; those using "extended" versions of Perspective Partners tools will employ a three-, four- or five-step process. The "steps" are color coded. Initially, each step is highlighted in red, indicating that action is required. Once a step is performed, the color changes to green, indicating completion. The net result is that the program provides a guided workflow. Within each step, buttons guide the advisor through the screens that each step is comprised of.

The dashboard's other function is to provide access to additional program features. New contacts can be added either by typing in the required information at the left of the screen, or by importing a list in a commonly used data format.

Under the contact entry screen is a hotlink labeled "Generate Sales Handouts," which could probably use a change in nomenclature. Here, advisors can access two generic educational reports for clients. Access to a standalone suitability questionnaire is provided here as well. Like much of the platform, these materials are customizable, so they can be geared to the sophistication level of both the advisor and the target audience. In this version, the printed materials are rather short and basic, but they are well written. I've viewed a version of sample materials geared to high-net-worth clients. They are more sophisticated, more detailed and equally well written.

For this implementation, during the first step (review) the advisor gathers information about the prospect's current portfolio. Depending on where the prospect's assets are currently held, it may be possible to import the data into the program. For now, however, let's assume that data will be entered manually.

Very little data is required-only the name of the security and the current dollar amount per holding. Perspective Partners maintains an extensive database of stocks, bonds, mutual funds and other financial instruments. Advisors can type a name, symbol or CUSIP, and in most cases the program will immediately recognize the security. If the system identifies more than one possible match, all are displayed and the advisor can designate the proper choice. Since data entry is quick, advisors can "process" prospect portfolios with minimal time and expense.

Once the data is entered, a "snapshot report" summarizes the portfolio by holding, asset allocation and sector weighting. From here, the advisor can click on an optional "Goal Check" button, which offers a screen to enter cash inflows and outflows throughout the planning period. Assuming that the advisor chooses to enter this information, the program performs a Monte Carlo simulation and supplies information on the likelihood of the portfolio supporting the client's goals.

Once the portfolio is entered, the rep generates a report. This report includes generic information about portfolio construction and asset allocation, followed by a snapshot of the current portfolio and the results of the Monte Carlo simulation (if generated). This is followed by a section entitled "Is My Asset Allocation Appropriate for My Goals," which includes a suitability questionnaire. Presumably the report will highlight possible weaknesses, encouraging the prospect to take the next step: completing the suitability questionnaire in preparation for a follow-up meeting. The printing of the initial report concludes "Step One."

Step Two, the Recommend Process, begins by entering the prospect's responses to the suitability questionnaire. The responses will generate an asset allocation recommendation. The allocation recommendation can be based upon the default Perspective Partners methodology or upon firm-specific models and methodologies. Once the primary allocation is generated, the advisor moves to the "goal check" step, which allows the advisor to account for cash inflows and outflows over the planning period.

Next, using both the built-in portfolio assumptions and the client responses to the suitability questionnaire, Perspective Partners applies artificial intelligence to generate a one-page report highlighting potential portfolio problems. Snyder considers this report to be a key to the platform's success. He calls it a "disturber report.

"In order to encourage a prospect to take action," says Snyder, "you need to spotlight what is disturbing; you need to give them a reason to act. The industry at large has not developed these kinds of products." Perspective Partners, he believes, has. The program points out both structural deficiencies in the portfolio, as well as problems related to the clients risk tolerance and/or world view. The advisor is able to easily identify problems for the client, while offering a clear solution.

Again, this section is customizable, and report results are linked to the questions presented on the suitability questionnaire. The questionnaire used in the tested version analyzes three broad areas: portfolio diversification, portfolio risk, and cash flow. Other areas of inquiry can be added and linked to the analysis. For example, if the questionnaire had asked the client about inflation and the client expressed worries in this area, the report would have highlighted inflation-sensitive portfolio holdings. In one test I ran, the program identified problems such as asset class gaps, sector overweighting or underweighting, overlapping mutual fund holdings, reinvestment risk and insufficient cash flow.

Assuming that the client is "disturbed" and ready to engage you, the next step is to reconstitute the portfolio so that the problems you have identified are alleviated. This work is performed at the "Recommendation Workbench." The Workbench allows advisors to rapidly convert the existing portfolio to a "recommended" portfolio.

At the top of the screen the Workbench indicates the target asset allocation, as well as the current allocation. Below that, Workbench provides a view of the current portfolio, and the asset class that the individual holdings correspond with. By simply highlighting a holding (or adding a new one), advisors can use the scroll buttons to "dial up" or "dial down" an asset class, and see how the change affects the overall asset allocation. When an advisor is satisfied with a change, the "Apply" button is clicked to lock in the trade. Once the portfolio is brought into balance with the recommended asset allocation, the program generates a list of trades necessary for implementation.

The Perspective Partners platform possesses some appealing characteristics. First, it presents advisory firms with a standardized process, or workflow, assuring that all prospects will be handled in a uniform fashion and that a well-defined process will be followed. From a compliance standpoint the uniform process, combined with the ability to monitor all engagements, offers a high comfort level.

Second, the "sales" process, which has proved highly successful for others, may help users convert a higher percentage of prospects into clients. If the program proves successful at generating higher close rates, it will almost certainly pay for itself in a short period of time.

Another plus is the low manual data entry requirement. In many cases, information can be imported from other programs. If this is not possible, a few keystrokes or making a selection from a drop-down list gets the job done.

In my tests, I identified a couple of minor annoyances with the platform. One basic problem was that the system did not automatically log me off when I closed my Web browser or turned off my computer. As a result, when I tried to log back in, I got an error message telling me that I already had a session running. In order to log back in, I had to log off first. This programming oversight was annoying, but not fatal. A second problem I identified was that the mutual fund database lacked some newer funds. Again, this was a minor problem, but one that should be remedied.

The Goal Check section of this implementation left something to be desired. It performs an automatic inflation adjustment for expenses and Social Security payments, but that's it. This version does not offer the ability to set one's own assumptions. I'm told that a coming release will offer more flexibility.

Overall, though, I thought the positives outweighed the few negatives. Perspective Partners is a promising new platform. The process, disturber reports, compliance, portfolio capabilities, etc., combined with the ability to customize the platform to a great extent, should appeal to a wide audience. Their proven track record with high-net-worth clients indicates that they may be on to something. If you are interested in effectively processing and closing new prospects, Perspective Partners may be able to help.

Joel P. Bruckenstein, publisher of Virtual Office News (www.virtualofficenews.com), is a leader in the field of applied technology for the financial services professional. He can be contacted at www.joelbruckenstein.com.