The post 5 ways Rebalancing Software Should be Creating Value for You and Your Clients first appeared on Blueleaf.
]]>A key value that advisors provide is the ongoing monitoring and management of client assets. Unfortunately, that value-added activity often happens silently. Why?
Rebalancing is still a long and tedious process for many advisors that only occurs once or twice a year. Because it is a lot of work and needs to be flawless, advisors have little energy to focus on the opportunities inherent in that work. If properly presented, rebalancing reports show a client their advisor in action, working for them. And yet, due to the effort involved, once or twice a year rebalancing gives a too-rare glimpse into the value the advisor creates.
Advisory firms have been stopping daily operations to crunch numbers on a spreadsheet just to get to the point of seeing what in their clients’ portfolios needs to be rebalanced. Automated drift monitoring allows an advisor to establish thresholds for how aligned clients’ portfolios are to models and then continuously track whether or not these accounts have drifted from these thresholds.
Automation allows this to be done on a daily basis, with no additional effort required. That means at any given moment, an advisor will know how closely aligned client assets are with their investment plan. It also means that rather than rebalancing based on the calendar, advisors can rebalance when assets have drifted too far. That creates an experience that is tailored to the client and the market rather than the calendar.
When a client’s portfolio drifts too far from its assigned model, automated rebalancing allows the advisor to approve the optimal trades to achieve alignment with the model. Thousands of possible permutations can be examined by the rebalancer in seconds, enabling advisors to take into account rules for things like specific securities to leave alone, cash minimums, and security equivalencies.
Automated rebalancing allows advisors to take actions quickly, executing recommended trades while still retaining control of trade review and approval. By removing all the work involved in calculating trades, automated rebalancing allows advisors to focus additional energy on communicating with clients.
Holistic wealth managers have been offering advice on complex client situations with multiple accounts for years. Until recently, few rebalancing systems included them. And those that did were often complex and expensive. That meant that truly holistic wealth management was reserved only for the largest clients where the enormous manual effort or large expense could be justified. Even then, it had to be infrequent because it was just too much work.
With automated multi-account rebalancing, advisors can now set a group of accounts to a single target and they can be coordinated automatically to achieve a target allocation. With the right rebalancer, it is now as easy as rebalancing a single account. That means holistic investment management can be offered to all clients and truly differentiate advisors from less equipped competitors.
But what about all those clients that have assets that are held-away? It’s hard enough figuring out the rebalancing numbers for managed accounts.
Doing it manually including held-away accounts across an even modest book of business is nearly impossible.
Yet we talk about Holistic wealth management and advising on a client’s complete financial picture. For that to be accurate we cannot leave held-away assets out. By combining new approaches for data aggregation, better data integrity, integrated client communication, and automation, truly holistic rebalancing is now possible. Financial advisors should start to see it this year.
This is a game-changer. Clients have been through a roller-coaster ride this past year and a half — both in the stock market and in their personal and professional lives. They need reassurance that their money is well taken care of. All of it. Automating held-away rebalancing is the only way to do that.
Managing tax exposure for clients is an important part of an advisor’s role. And leveraging tax-aware rebalancing can create value in two primary ways: asset location and tax-loss harvesting.
Optimizing asset location is only possible with a household or multi-account rebalancing system. Asset location prioritizes placing higher return, less tax-efficient assets in tax-deferred accounts. Household-level rebalancing software helps automate this by accounting for the differing tax-deferral priority among all the clients’ security types and may also account for differing priority among multiple tax-deferred accounts. Research suggests this creates about 25Bps.
Tax-loss harvesting by selling securities at a loss can either be used to offset gains in other securities or create capital loss (up to a limit) that reduces a client’s tax bill. Well-featured rebalancing software can help by recognizing these situations automatically and by recommending replacement with similar but not identical securities that helps maintain that target asset allocation without triggering the wash-sale rule. Research puts the estimated value of this between 15 and 25 Bps annually, with some studies putting it as high as 50 Bps in additional annual return.
By automating these two tax-aware strategies, rebalancing software can almost fully offset advisory fees for clients with taxable assets.
“If a tree falls in the forest ….” the old saying goes. For advisors, it might be better rephrased as “if it isn’t communicated to clients, did it happen? Did it matter? Did your client credit you with the value you’re creating?” The unfortunate answer here is most often no. Despite this, most advisors don’t regularly communicate what they do for clients, but rather focus solely on the outcome. Given the huge role investment management plays in most advisors’ businesses, that is leaving a lot of unrealized client value creation on the table.
Rebalancing software that generates client-friendly reports can help fill this void. Imagine your clients seeing every time analysis was performed on their investment portfolio. With automated rebalancing and monitoring, that happens every market day. Incorporating that into your client reporting means clients see you working for them daily. Automated rebalancing software can also produce reports that succinctly explain the analysis and the work done when rebalancing accounts for clients. If you also incorporate that into your client reporting, all the value you create will be recognized by clients. With great rebalancing software, it will all be automatically done as part of the system.
Most advisors rightly think of automation primarily as a mechanism to save time. That makes sense. But in the case of rebalancing, it’s different. The right rebalancing software actually creates value for clients and can help you clearly demonstrate the value you provide.
The post 5 ways Rebalancing Software Should be Creating Value for You and Your Clients first appeared on Blueleaf.
]]>The post The One Rebalancing Trick That Creates Real Client Value & Could Expand Your Business first appeared on Blueleaf.
]]>Blueleaf now has a rebalancer that bridges the disconnect of traditional rebalancing systems. Now the advice advisors give can be aligned with the way they manage assets. Blueleaf has a rebalancer that works at the household level.
No one else has this. Those are words that are often spoken but rarely proven. You can take our word for it on this one. We spoke with hundreds of advisors and researched dozens of software applications. There just aren’t many tools out there that can reliably rebalance portfolios containing multiple accounts.
What clients really care about is a way to holistically manage wealth across their household. Our rebalancer can apply a single model across multiple accounts and optimize the assets in each but coordinate to a unified target. Do you have a tool that can do that now?
Visualize this from a growth perspective. No one else has it. That gives you a competitive advantage right away. Internally, the ability to rebalance an entire household can lead to clients trusting you with more assets, referring friends, and bringing additional family members under your management umbrella. Used properly, this new holistic rebalancing becomes a differentiated service and a growth engine.
The term “holistic wealth management” has been in use for decades. Until now, it’s never been fully realized. Advisors can give advice based on holistic principles but have been unable to follow those up on the asset management side of the equation. With the Blueleaf rebalancer, the time has finally come where true holistic wealth management is possible to deliver at scale.
Financial recommendations are more meaningful when they incorporate accounts that the advisor doesn’t directly manage. It shows the client that you have a full grasp of their situation. That encourages them to expose you to more of their outside assets. By offering advice on those assets, deliver better results for your clients and gather more assets for your business.
CFP® who are not investment-focused will appreciate our new rebalancer because they treat the financial plan as the guiding light for the entire investment process. The ability to view and rebalance all accounts together helps them reduce trading, lower trade costs, and minimize tax liabilities. That’s what their clients are paying for.
Asset managers also benefit from lower trading costs and minimized tax liability for their clients. In particular, asset managers will love the value they can deliver via better asset location across accounts. Higher return, less tax efficient assets are bought within tax preferred accounts while lower return, more tax efficient assets can be placed in taxable accounts.
All this is possible with holistic household-level rebalancing. Blueleaf has it. Financial planners and asset managers can both benefit from it. Call one of our coaches today to get connected.
The post The One Rebalancing Trick That Creates Real Client Value & Could Expand Your Business first appeared on Blueleaf.
]]>The post The Future of Rebalancing: Rebalance in the Blink of An Eye, Click of a Button first appeared on Blueleaf.
]]>Visualize the rebalancing process for a moment. Advisors are required to initiate all the action. They have to calculate the movement of each security in every account on an Excel spreadsheet, then measure it against a target allocation model.
That’s a whole lot of work. Even with drift tracking, the actual rebalancing is still a labor-intensive process, causing most advisors to only do it once or twice a year. There’s reasonable justification for doing it that way, but competitors offer more than that.
Take this one step further. The process we just described is for a single account. Upgrade that to the household level, with multiple accounts, and the workload increases exponentially. The time involved becomes all-consuming. That’s the reality we’re dealing with.
Financial advisors don’t spend their time discussing single accounts with clients. The modern approach to wealth management is to view client households holistically. That’s the way we think and how we want our clients to view their financial picture.
Can you see the disconnect? Advisors preach a holistic approach and encourage clients to view wealth building in the same manner. Current rebalancers target individual securities and can’t bring in held-away accounts. As the song says, “One of these things is not like the other.”
This is a systemic problem for financial advisors. The way they connect to and advise clients is not in line with the way they manage assets. It can’t be. The tools and technology needed to manage holistically are just not there. That needs to change.
With rebalancing, we can’t just simply “speed up” the current processes available to advisors. Automating the current process doesn’t solve the problem. What we’re talking about here can’t be done at all, with currently available tools.
Science fiction sometimes becomes science fact. The concept of automation set off alarm bells in the seventies. Today, machine learning is a reality that powers hundreds of business applications. Simple automation is even more prevalent. We use it frequently in financial services.
Imagine what life would be like if rebalancing included all client accounts automatically. As Morpheus said in the Matrix, “Free Your Mind.” Travel down this thought path a little further and you can easily see automated, drift-based rebalancing happening as often as needed. Set the criteria, receive the trade recommendation, push the button to execute. Once per year for some clients, many times for others with no difference in effort but a big improvement in client outcome.
Holistic wealth management is dependent upon being able to see the whole client picture. That includes held-away accounts, which should be part of the rebalancing process.
Advisors often adjust managed accounts to offset poor performance in held-away accounts.
The rebalancer of the future will include a way for clients to receive recommendations to make changes to their held-away assets. These “friendly suggestions” would be in line with the financial advisor’s portfolio management strategy. It would support the client’s action.
As the question goes, “if a tree falls in the forest but no one hears it, did it make a sound?” For an advisory business the answer is clear. Value needs to be delivered AND perceived by clients to be real. This is another area where most current rebalancers fall short: reporting on the value created.
Not only must the application do the work of rebalancing, it must also report on that work in a client-friendly way that clarifies the work done and the value created. Think “Turbo Tax simple.” They’ve mastered the art of making simple recommendations that their users just accept because they make sense to them. To create real value rebalancing must be explained in a straightforward way.
Stay tuned. In the coming weeks, we’ll be introducing a solution that makes truly holistic wealth management possible through rebalancing.
The post The Future of Rebalancing: Rebalance in the Blink of An Eye, Click of a Button first appeared on Blueleaf.
]]>The post Why Rebalancing Still Sucks 10 Years into the Robo-Advisor Revolution first appeared on Blueleaf.
]]>You’d think by now we’d be further ahead. With all our technical advancement, why is rebalancing still missing the mark? We’re ten years into the “robo revolution” and this critical technology is still leaving most financial advisors unautomated, unable to manage at the household level, and still making manual entries and spreadsheets. Advisors deserve better than that.
Let’s review the innovations in wealth management over the past ten years. Robos have been going strong since 2011 and have brought the concept of automated investing to everyday consumers. Automation has made it possible for advisors to compete against them. FAs have evolved their business models to offer a more holistic approach.
Meanwhile, wealth managers are still using spreadsheets to calculate rebalancing. Why? The few moderately effective rebalancers on the market are expensive. Free tools don’t have the functionality to justify the time investment necessary to use them. Any automation that does exist is available mostly for single accounts. How can you manage holistically with that restriction?
Has your custodian provided you a “free” rebalancing tool? Chances are, it doesn’t do the job you need it to do. Many FAs are using only some of the functions, like automated drift tracking. That’s a nice feature to have, but free rebalancers can only track one account at a time. That doesn’t help when you’re trying to holistically manage a client household.
Another issue with free tools is that they’re provided by your custodian, so they only track the accounts you manage through that custodian.
There’s no way to pull in held away assets or other accounts you might manage through a competitor. Client households contain outside investments, like 401(k)s and self-directed investments. How do you account for those?
It’s no wonder that wealth managers turn to spreadsheets when it comes time to rebalance. Even with some automation, most advisors don’t trust the output of their free tool enough to simply “take it on faith.” The time investment required to “get it right” is holding them back from expanding their client base. That’s not a benefit. It’s a burden.
One might assume that paying for an expensive rebalancing tool would solve all these problems. It doesn’t. Aside from the additional cost, most rebalancers don’t do the whole job. Even “all-in-one” tools, which are more expensive, can’t bring in held-away assets. Some are multi-account capable, but they’re clunky and generally difficult to get full value.
The underlying problem with both paid and free rebalancing tools is that there’s a disconnect between how advisors want to manage assets and the output of rebalancers. Modern FAs think and manage holistically. Rebalancing is centered on individual managed accounts. Tools with multi-account capability add some value but they still presume account control. It’s not enough.
The bottom line for advisors is that there is a gaping disconnect between how advisors think about advising clients and the actual execution. Advisors aim to provide holistic advice yet asset management continues to center around individual managed accounts.
As a result of their limits, most current rebalancing tools can only ever be a partial solution for financial advisors.
In most cases, the amount of work necessary to use them doesn’t justify integrating them into a firm’s technology stack. This may explain why still today most advisory firms do not have a rebalancing solution. Advisors need a rebalancer that can bring in managed accounts, held-away accounts, and multiple custodians.
Another issue with existing rebalancing platforms is that FAs are either getting a single, limited tool or an expensive all-in-one where they have no choice but to use the entire suite. That involves switching over performance reporting, risk management, aggregation functions (if any), and analytics. That’s a lot of work for a tool that doesn’t do what you want it to.
The ideal scenario for wealth managers would be to have a rebalancer that can be bought as a stand-alone tool or as part of a technology suite. It needs to be transparent enough so that FAs trust the output and sophisticated enough to handle complex client households. That’s the only way that advisors can manage client households holistically.
This is all part of a larger issue in wealth management. Advisors must connect and align the advice they want to give with the way in which they manage assets. This will require them to make use of technology and automation in a way that accomplishes their business goals. The solution is not simply to “do it faster” but to “do it at all.”
The post Why Rebalancing Still Sucks 10 Years into the Robo-Advisor Revolution first appeared on Blueleaf.
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