The sophistication of an RIA or family office must match that of the rebalancing and trading solution they use. Smart and experienced financial advisors serving high-net-worth (HNW) and ultra-high-net-worth (UHNW) clients know this all too well. It is not unusual for many to quickly outgrow their standard “vanilla” rebalancers as the demand for more personalization, flexibility and scale increases.
When it comes to rebalancing, trading and order management, technology must add value to the client experience by providing precision and personalization with greater flexibility, while also improve scale by streamlining processes. In many conversations with successful advisory firms, we know that today’s shrewd advisors need solutions that help them to reduce the complexity of meeting modern and evolving client needs while improving productivity and efficiencies.
Here are the main qualities the best advisors seek in a rebalancing solution to help them consistently achieve and support their next phases of growth and sophistication.
A rebalancing solution should be tax-sensitive, meaning it should help the advisor to reduce or eliminate the client’s tax consequences. Functionality such as asset location optimization, tax-loss harvesting at the position or tax lot level, and capital gains budgeting enhance an advisor’s ability to meet their clients’ specific tax strategy goals. Unlimited sets of tax rules, custom thresholds created at the account, asset classification or household level, and wash sales logic across households are other key rebalancing features to help clients maximize tax efficiencies.
Portfolio Transition Support
Growing RIAs must be able to scale and support new advisors quickly, but organic growth and M&A activity can introduce greater complexity into the business. Firms must be able to successfully onboard advisors, transition portfolios, and scale to significant growth without missing a beat. Advanced rebalancing and consolidated, streamlined trading are essential to achieving this feat while supporting diverse clients, advisors and portfolio models, maintaining the ability to individually tailor portfolios, and meeting on-demand requests from clients across multiple segments, accounts and households.
A technology solution that offers asset location, tax-loss harvesting, and household-level rebalancing is crucial to enable advisors to quickly and simply make the shift to household modeling. Without the right rebalancing and trading technology, achieving mass portfolio modeling and customization at the household level is difficult and time-consuming. It also makes the transition to householding a long and complicated process. A rebalancing solution should provide aggregate data and model targets, support desired imports and ultimate output, and scale efficiently – enabling the firm to bring on more clients and give each the same high-quality service without the additional overhead.
Flexible Rules and Workflows
In the rebalancing world, flexibility means the ability to augment default rules and workflows as the needs of the practice change, and build custom models for clients. This is especially crucial for advisors who want to take a very tactical approach to investment strategies, but also want to adopt model-based investing firm-wide over time to offer more diversification, research and rebalancing features. A solution should give firms the ability to import restrictions, equivalents, and account and household attributes, as well as customize the rebalance settings for a group of portfolios.
Trading & Operational Efficiency
Integrated trading execution and extensive order management system (OMS) connectivity are crucial to meeting the needs of RIAs with more complex rebalancing requirements. Such functionality can enable advisors to review and approve orders quickly while providing support across all asset types and sophisticated workflows.
Straight-through processing of trades via FIX connectivity provides a simplified operational and compliance workflow, better efficiency, and improved accuracy. Achieving greater flexibility and scalability across trading operations is key to increasing growth and service quality.
In addition, trade reconciliation can be a time consuming and tedious process since the process still relies on manual effort to resolve breaks. A trading and rebalancing solution should reconcile each day’s trade file against the next business day’s portfolio management system or custodian data to identify missing trades, quantity errors, and pricing variances.
Tech Stack Integration
A rebalancing and trading solution should fit within your ecosystem and integrate with portfolio accounting, client relationship management (CRM) and other platforms to drive efficient communications between your teams, and better position your firm to deliver a best-in-class, customizable experience for your clients.
Technology is an integral part of a firm’s client retention and business growth strategy. The more complex your clients’ requirements tend to be, the more advanced your rebalancing solution should be to simplify the complex and effectively support their needs. It should make trading and client servicing seamless for all of your users throughout the firm while giving advisors more time to continuously create and deliver more value to clients. Finding the right rebalancing solution should be on every growth firm’s critical path to fulfilling their strategic plan to scale the business and compete on a more advanced level and continuously create and deliver value to their clients.