Is MyVest the Right Portfolio Rebalancing Software for You?

Research has shown that portfolios that are rebalanced at least annually experienced lower volatility and higher risk-adjusted returns than those that are not rebalanced.  Every advisor should have access to a quality, automated software rebalancing tool to handle this task, which used to be a time-consuming chore.

As part of my series of articles on portfolio rebalancing software, I reached out to MyVest. The company was co-founded by Bill Harris in 2001 and has their headquarters is in San Francisco, CA. Harris, who is chairman of the Board of MyVest, was formerly CEO of both PayPal and Intuit and is currently the CEO of Personal Capital.

MyVest has been gaining traction recently, announcing a deal with Thomson Reuters to provide their Strategic Portfolio SystemTM (SPS) wealth management platform to users of Thomson Reuters’ Beta Systems clearance and custody platform.  This will be a welcome improvement and provide Beta’s broker-dealer clients with a more modern managed accounts offering.

For this review, I spoke with Mike Everett, Vice President of Business Development and Charlie Haims, VP of Marketing.  Everett  joined the firm back in 2010 after 14 years at Checkfree (now Fiserv Investment Services).   Haims has been with MyVest for almost a year and a half and was previously in the same role at SharesPost. Continue reading

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IAS Responds: Which Portfolio Rebalancing Software is Right for You?

As part of my series of articles on portfolio rebalancing software, I met with some folks from Interactive Advisory Software (IAS), who were kind enough to give me a demo of not only their rebalancing tools, but their entire wealth management platform, called Solution 360.

IAS is based in Egg Harbor Township, NJ and was founded in 2000.  They have 55 employees to support around 200 firms using their platform, of which 90% are RIA’s.  They are a fully-owned subsidiary of Hanlon Investment Management, which purchased IAS from their VC backers in 2012.

I had the pleasure of speaking with Nathan Burke, CEO of IAS and Matt Wolf, Regional Sales Director who provided a high level overview of their product.  They handed me off to Wade Waller, Director of Product Management and Ryan Jotkoff, the Product Manager for Rebalancing to answer my more in-depth questions.

Tax Management Sets IAS Apart from the Competition

Tax management is probably the area that most sets them apart from their competitors, according to Wolf.  Since their platform includes financial planning and their rebalancer is tightly integrated with the rest of their system, it has immediate access to a lot of additional client information.  This helps the rebalancer make better decisions as well as generate detailed tax estimates with multi-year projections and taking into account gross income, itemized deductions and client expenses, he explained.Tax Squeeze Finger

While I usually advise clients against ‘re-inventing the wheel’, in this case, the time and effort it took IAS to develop their own financial planning functionality has paid off.  Whereas other firms force clients to import data manually or use programming interfaces that are sometimes unreliable, IAS has immediate access to all the data.

And they use this data to their full advantage across the system in ways I haven’t seen many other vendors offer.  The system has an automatic exercise feature that converts employee stock options into an underlying equity position going forwards, captures dividends and can even project the client’s future tax rate, Wolf added.

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Envestnet’s ENV2 Platform Delivers New UMA Features

Sliced bread.  The electric light bulb.  Indoor plumbing.  Unified Manged Accounts (UMA’s) were supposed to be better than these revolutionary inventions and a whole lot more.  They still have not lived up to their hype, but UMA’s have become a standard offering for all managed account platforms.

In this summary of a session from Envestnet’s 2014 Advisor Summit, a panel of experts provides updated information about the Envestnet UMA program including how the program has changed over time, coordinating and updating UMA models, building performance composites and other exciting, new features.

Moderator: Jeff Nicholas, Senior VP, Product Management, Envestnet
Panel: Daren Evans, Sr. Research Analyst, Hightower Associates
Joel Floum, VP, Investment Advisory Programs, US Bancorp Investments
Jim McCormick, Principal, Pryor McCormick Investments

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Going Under the Hood of Models-Only Programs

This is a summary of a session from the Money Management Institute’s Fall Solutions Conference that was held in October 2013 in New York City.

Moderator: Heeren Pathak, CTO, Vestmark

Panelists:

Are some asset classes better suited for use in models-only programs?

Asset classes that are more liquid are usually easier to trade in a model, Lasker observed.  Communication is important here since some assets can become illiquid for short periods of time and the managers need to know when there are problems implementing model changes, he stated.

While some strategies are more challenging, most obstacles can be overcome so that they can be included in a model, Overway commented.  Fixed income is a good example, since the models are often provided in the from of a list of characteristics instead of individual securities.  This entails more communication between the Natixis overlay management group and the model manager about which securities would be acceptable in the model portfolio, he pointed out. Continue reading

Which Portfolio Rebalancing Software is Right for You? FolioDynamix Response

I recently posted a summary of the Portfolio Rebalancing Software Panel from the Tools and Technology Today (T3) Conference that took place in Miami last month.  The responses from the four vendors were very informative and I thought it would be interesting to hear from a few other vendors who couldn’t be part of the panel.

The first vendor I contacted was FolioDynamix.  They have been wracking up some impressive customer wins with Cambridge Investment Research and LPL Financial signing on to deploy their wealth management technology platform.  FolioDynamix is also the engine behind the block trading and rebalancing functionality in Pershing’s NetX360 product.

For this article, I spoke with Aaron Schumm, who was recently promoted to the position of Chief Customer Officer.  I asked Aaron the same questions that were posed to the T3 panel and he was kind enough to provide the following answers.

What are the main differentiators of your product?

The FolioDynamix trading and rebalancing tool (FDx Manage) has several differentiators that resonate through the fee and commissioned-based trust and brokerage industries – all of which contribute to increased productivity, efficiency and insight, Schumm responded.   It is cloud-based and integrates seamlessly with existing internal and external systems across multiple custodians.  It also monitors 30 types of drift and cash movements for accounts, he said.

Their alerts dashboard allows portfolio managers to rebalance all of their accounts in a single trade scenario, Schumm continued.  Since scalability and visibility are critical to their clients (LPL Financial for example), FolioDynamix designed a highly-scalable rebalancing engine that allows for multiple accounts to be linked to multiple models, which are held at multiple custodians and can be traded and executed simultaneously, he stated.

According to Schumm, their platform is tax-aware and automatically checks for wash sale violations, restrictions, minimums and replacement securities.  FolioDynamix also follows custom trade workflows for orders over defined amounts, discretionary, non-discretionary and commission-based accounts.  Finally, FDx Manage seamlessly interoperates with the other modules of FolioDynamix SingleSight wealth management technology platform – allowing firms to deploy a single cloud-based system to support the entire wealth management life cycle, he noted. Continue reading

Which Portfolio Rebalancing Software is Right for You? (2/2)

This is part 2 of 2 of a summary from a panel discussion at the Tools and Technology Today (T3) Conference, which took place February 11-13, 2013 in Miami, FL.  You can read part 1 here.

Moderator: Tess Downing, Financial Advisor, Fox, Joss & Yankee, LLC

Panelists:

Does your product update portfolios using real time prices before rebalancing?

iRebal retrieves the latest pricing as soon as a rebalance is run, Fava stated.  All of the recommended trades are created using dollar amounts instead of number of shares, since they believe this provides a better picture of how the trades will impact cash levels.  They convert this to the number of shares when trades are approved and also refresh the pricing, she noted.

Tamarac also offers real-time pricing as part of their rebalance and also real-time execution reports for equities and ETFs, Rembe said.  Also, when you tell the system to update the cash positions, it evaluates T1 and T3 settlement to ensure that the accounts won’t be short cash.  If they are, then it provides an option to put those trades on hold and execute them on a later date, he said.

TradeWarrior receives real-time pricing from an external feed that can be used to update positions before running a rebalance, Evans said.

Rowling pointed out that TRX was designed to focus on trading of Dimensional Fund Advisors (DFA) funds, so they haven’t previously had a need for real-time pricing.  However, in response to recent requests from clients, they plan to support real-time pricing in a release sometime in the second quarter of 2013, she said.

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Model Delivery is Risky Business, According to Manager Survey

Most investment managers believe that the risks associated with communicating model changes to sponsors are significant and have the potential to result in negative impact to their firms. This was one of the results of a survey done by Dover Research as reported by Jean Sullivan at the Financial Research Association’s 9th Annual Managed Account Summit, which took place in Boston last month.

Jean reported that model managers support an average of 6.5 model platforms each, with some managers supporting as many as 20 different sponsor platforms!

47% of managers surveyed say that they support fewer than 5 platforms, 37% support between 5- and 10 platforms and 17% support more than 10. These additional linkages can lead to elevated risk, Jean warned.

Jean told us that every investment manager that Dover spoke to is concerned that sponsors won’t be able to implement their trade instructions accurately. This is complicated by the numerous proprietary communication infrastructures developed by sponsors with many variations existing on multiple dimensions such as different delivery mechanisms (email, fax, web portals) and different messaging formats.

Sponsor Trading Constraints Are a Concern

A big area of concern for managers is trading constraints, Jean noted, due to the following issues at sponsor firms:

  • limitations in data formats
  • sponsor weight and volume restrictions
  • basis point limits
  • inability to implement price limits
  • inability to put securities on hold for more than 30 days
  • constraints on the number of trades
  • inability to implement international strategies

Three Types of Model Risk

Investment managers in the Dover survey identified three different types of potential risks that arise from model delivery:

  1. Reputational – defined as performance dispersion due to the inability of the sponsor to implement the manager’s model. This could be caused by a manager wanting to make an intra-day model change, but can’t because the sponsor doesn’t support it.
  2. Best Execution – defined as the inability of the sponsor to achieve best execution due to trading restraints. Trade rotation processes influence best execution, because there is no automated feedback regarding trade execution, so the manager doesn’t know when their trades have been executed. It could be due to sponsor firms competing against each other in the market. It could also be due to delays in communicating model changes.
  3. Operational – defined as the increased risk of errors due to the manual nature and inconsistency of the current model update processes. For example, if the manager’s operations staff makes an error in a model change, the manager is then responsible for making sponsors and their clients whole, even if the mistake isn’t discovered until months later. This is an area of significant cost and concern for investment managers.

The managers were then asked to rate which of these risks are “significant”. 50% selected operational, 45% said best execution and 17% chose reputational.

Due to the many issues arising from model communication, many managers are starting to build out their own model validation processes to reduce manual error and monitor best execution at the sponsor, according to Jean. Also, 67% of managers believe that a centralized model service that provides a standardized method to implement and monitor trade rotation would reduce risk.

The Model Management Exchange (MME) from DTCC is such a centralized model service, Jean said. It is secure and redundant communication system with integrated audit trails incorporating validation and confirmation features. It can also facilitate the trade rotation process, but this would require sponsors to send their execution data to DTCC.

The industry should take the opportunity to do something now to address the risks surrounding model delivery, urged Jean. I agree that something should be done, but what exactly?

Before anything can be done, both sponsors and managers should agree that they must work together to solve the problems. The risks expressed by managers are due to a complex mix of factors and cannot be easily mitigated and especially not in isolation.

A centralized model hub, such as the DTCC’s Model Management Exchange (MME) or Fiserv’s Model Information Exchange (MIX), which is planned for 2012 release, could help, but only if they achieve critical mass and then they can only help on the communications side. Risks that are due to specific sponsor’s model policies (i.e. Inability to implement price limits, trading windows) or manager operational issues (manual errors) will still exist no matter how the model information is delivered.