Which Portfolio Rebalancing Software is Right for You?

This is a summary of panel discussion from the Tools and Technology Today (T3) Conference that took place February 2013 in Miami, FL.

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



What do four vendors of rebalancing software have in common? Quite a lot! All four vendors are custodian-agnostic and have cloud-based versions of their software. Although, there were some notable differences in the product offerings, which could help sway you one way or the other. This is not an exhaustive list of top vendors, but should provide a good overview of whether one of these four would be a good fit for your firm.Top 5 Rebalancing Software

Most of the advisors in the audience indicated that they were already using automated rebalancing software, which was surprising, considering that a recent Investment News survey reported that over 70% of advisors still rebalance manually or not at all. Hopefully, this panel imparted some insight as to the many benefits automated portfolio rebalancing can bring their practice.

What is the main differentiator of your product?

The main differentiator for iRebal is its pro-active portfolio monitoring that’s integrated with Veo, Fava suggested. Advisors can also customize alerts to watch for cash investment opportunities or drift and will be notified through the Veo dashboard or on their mobile device, she said.

One of Tamarac’s greatest strengths is its large client base, Rembe noted. Another strength is something they call Tamarac University (TamaracU), which is a training organization designed to help client understand how to use and get the most out of their product. All Tamarac implementation consultants have worked at an RIA, so they have a deep understanding of their business processes.

TRX is multi-custodial, can manage outside accounts like 401(k)’s and patent-pending tax efficient processes Rowling asserted. She also noted that cost should be the primary factor in making a decision due to the tremendous benefits provided by rebalancing software. She recalled that before she founded TRX, she worked at an RIA firm that used iRebal and they paid $50,000 annually. All the vendors on the panel have average prices that are much less than this, she said.

TradeWarrior’s user interface is designed with a similar look and feel as Microsoft Office, with a large ribbon bar at the top. This provides a user experience that most advisors will be comfortable with and reduces the time needed for users to get up to speed on the product, the firm believes.

Panel IntroductionsTime is money

Tamarac was founded in 2000, according to Rembe after the founder, Matt Springer, left Parametrics. Their first product was tax-managed indexing and they built their rebalancer after entering the RIA market in 2005. Tamarac was purchased by EnvestNet in 2011.

They now have 550 RIAs on their platform who manage over $300 billion in AUM. Their average client has $150-200mm in AUM. Tamarac also has a built in OMS that provides straight-through processing (STP) for trading equities and ETFs, setup through Sungard FIX connection, electronic execution with a number of broker dealers,

Trade Warrior was the smallest vendor on the panel, Evans observed. Their strength lies in their ease of use and design similarities with the Microsoft Office Suite. Trade Warrior also offers a 60-day trial period, which is probably the longest in the industry (not counting the future free version of iRebal, which effectively has an unlimited trial period).

TD Ameritrade purchased iRebal back in 2007. They announced that they will be releasing a cloud-based version of iRebal for free that will be integrated into their Veo platform for assets custodied at TDA. Including real-time position data, real-time pricing, STP

Total Rebalance Expert (TRX) was founded by Rowling and Cheryll Lurtz in 2009 after Rowling was dissatisfied with rebalancing software available at the time. They currently have over 100 RIA clients.

How do you convince advisors who still rebalance manually that software automation can do it better?

Rowling compared to advisors who don’t use rebalancing software to CPA’s before automated tax preparation software became the norm. Rebalancing software can help an advisor avoid trade errors, coordinate multiple variables, and improve scalability. Each advisor should choose the rebalancing software that best aligns with their specific requirements, she advised.

Rebalancing software can also also automate daily processes such as cash management, drift monitoring, following restrictions, avoiding wash sale violations and handling security swaps, Rembe noted. Advisors who want to add value to the rebalance process can always tweak the results that the system generates, he said.

TRX sponsors an informational site, rebalancing-software.com, that provides information on how to choose rebalancing software, Rowling mentioned.

Update: Since this topic has been so popular, I launched a series of articles on portfolio rebalancing software. Here are links to a few that you might find interesting:
The Best of Both Worlds: Portfolio Rebalancing + Best Execution = Blaze Portfolio
Is MyVest the Right Portfolio Rebalancing Software for You?
IAS Responds: Which Portfolio Rebalancing Software is Right for You?
FolioDynamix Response to Which Portfolio Rebalancing Software is Right for You?

Can you provide a real-world example of the efficiencies that your product brings?

Portfolio Rebalance Process FlowRowling referred us to a 2009 white paper, “Return on Technology (ROTI)” written by David J. Drucker. The paper states that “TRX pays for itself in the first year and goes on to generate a ROTI of 171% a year…” Unfortunately, a payment of $99 is required in order to read this white paper, which I wasn’t prepared to make just to verify her claim. In my opinion, if a vendor references a white paper or other research to back up a claim, then the document should be freely available for download. Just my two cents…

A Tamarac client with $900 million AUM used to require six weeks to rebalance all of their accounts, but only takes three hours now, Rembe reported. Their rebalancer can process approximately 1,000 accounts per minute. One Tamarac client even rebalances 100,000 accounts over the course of two days, he said.

Fava related the experience of one firm that implemented iRebal and was able to increase the number of clients they support from 350 to 800 while reducing the number of dedicated traders from three down to one.

According to a study published last year by Scivantage and CEB TowerGroup, “the manual rebalancing process takes 350 hours [on average per advisor per year], while the automated process takes only 100 hours per year.”

Can you describe your level of integration with any external systems?

iRebal has an advantage due to its connection with the Veo platform, Fava asserted. Veo provides quick and easy integration to over forty different products with single sign on (SSO) and no recon required (for accounts custodied at TD Ameritrade). iRebal receives real time positions from all major custodian platform with straight through processing (STP) including allocations and block trading and they are technology agnostic, she said.

According to Evans, TradeWarrior integrates with the following custodians:

  • Charles Schwab
  • Fidelity Investments
  • National Financial
  • Pershing
  • Shareholder Services Group
  • TD Ameritrade
  • TradePMR

Rembe noted that Tamarac is unique since it is offered as both as a stand-alone product as well as part of the Advisor Xi software suite, which consists of Advisor CRM (built on Microsoft Dynamics), Portfolio Management, Billing, and Rebalancing and Trading, he said.

TRX works with almost every portfolio accounting system and they also work well with TD Ameritrade and will soon to be part of their Veo platform, Rowling confirmed.

How much does your product cost?

This is a question that I don’t often hear answered at trade shows or conferences. I wish more panels would ask about pricing to give advisors an idea of what the different products are going to cost them.

TRX pricing starts at $5,000 annually before discounts, Rowling informed us, with the average cost around $10,000.

Tamarac pricing also starts at $5,000 annually and increases based on the number of accounts, Rembe said.

TradeWarrior pricing starts at $4,000 annually, Evans stated. In addition, firms pay a sliding scale asset based fee. For the first $200 million, that asset based fee is . 003%. For $201 million to $1 billion, it is .002%. Above that, it is .001%. For example, for a $100 million RIA, the annual cost would be $7,000.

According to the iRebal website, for the stand-alone product, the annual licensing fee ranges from $20,000 to $50,000 for clients with $300 million to $1 billion in AUM. There is also a one-time setup fee of $10,000.

“the manual rebalancing process takes 350 hours [on average per advisor per year], while the automated process takes only 100 hours per year.”
–Recent study done jointly by Scivantage and CEB TowerGroup

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.

Can your product help advisors to build their own investment strategies?

None of the products include functionality to build strategies. Tamarac, TRX and iRebal all partner with other firms and products to accomplish this. Tamarac offers access to research from Envestnet and Prima Capital, which EnvestNet purchases in 2012. iRebal offers similar services via Morningstar while TRX integrates with MacroRisk Analytics, which for an additional charge of $50 per month, allows you to build and compare models, review them pre-trade and post-trade to help with decision-making and all of the risk-return characteristics, Rowling said.

The only outlier in this category is TradeWarrior, which doesn’t currently offer any ability to build strategies, but they are exploring an integration with HiddenLevers to provide this, Evans reported.

I think that this is one of the areas where vendors can add significant value to the investment management process. For those advisors who are build their own models, it would cut out a few manual steps if the modeling tool was tightly integrated with the rebalancer. Especially for Rep as PM advisors who adjust their models on a regular basis. Having the ability to hit a button and export the updated model right into the rebalancing software would be a time saver.

Does your product have customizable asset classes to support long/short strategies?

All asset class in Tamarac, TradeWarrior and TRX are customizable and support basic option trading (like selling covered calls). However, none of these product would be a good fit for advisors that primarily use options strategies like long/short, since they do not have any automated processes to support this kind of trading.

In contrast, the iRebal stand-alone version does support long/short and other option trading strategies, according to Fava. Although, the upcoming cloud-based version does not, she added.

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What is the average implementation time for your product?

TRX, TradeWarrior and the iRebal standalone version can be fully implemented in between 1-3 weeks, including user training, their representatives claimed. Rembe said that Tamarac usually requires a 90 day window to get to the point where the system is being operated effectively. Fava claimed that the soon-to-be-released cloud-based iRebal could be fully implemented in just one day since. This evoked some it will be tightly integrated into Veo and will only support assets custodied at TDA.

What features do you offer that sets you apart from the other vendors?

iRebal offers a flexible tax harvesting feature that allows you to set various thresholds such as loss greater than $X at the position or tax lot level, can choose a replacement security for each harvested security, set a portfolio target loss amount that gets the client to net zero capital gains for the year. The tax harvesting event doesn’t end there for iRebal because it continues the event process for up to 31 days and alerts you to unwind the replacement positions. Also, if another rebalance is run before 30 days, the system won’t automatically try and sell the replacement securities and won’t buy back the harvested positions, she said.

TRX also offers a tax-loss harvesting feature at the fund-level, Rowling stated, which is extremely efficient. It would take only five minutes to analyze all portfolios across your entire client base for tax losses, she claimed. Another interesting feature is charitable lot identification, which locates the most appreciated long-term lots for a client to donate to charity in order to maximize their tax benefit.

To this end, TRX allows you to generate a tax benefit reports that will show your clients how much they’re saving in both total dollars and as a percentage. The system can also run an end of year capital gains avoidance report for mutual funds, which will identify funds that should be sold in order to avoid capital gains payouts. On average, firms that use TRX provide a tax benefit boost to their clients’ performance of between 1.0 to 1.5%, she reported.

What is your recommended frequency for rebalancing?

There is no optimal rebalance frequency since every firm uses different parameters to build and manage their client portfolios, Rembe advised. While some Tamarac clients use calendar rebalancing, most setup drift guardrails of 20% above and below the model targets. The system will automatically trigger a rebalance when a portfolio crosses this threshold, he confirmed.

iRebal will monitor all portfolios daily, based on the specific drift tolerances that are set up, Fava said. But the system won’t automatically generate any trades. The user would need to initiate this action, she advised.

Evans pointed out that a firm’s optimum trading frequency depended on whom they were trying to please. If the goal is to please their custodian, then they should trade every day! However, in order to make clients happy, each firm should evaluate their own needs to determine the best rebalancing frequency, he said.

Does your product support hierarchical modeling (models of models)?

Model of Models

Tamarac launched support for models of models about a year ago, Rembe said, and it supports up to nine nested tiers of models. Advisors are looking to make more tactical moves in response to changing market conditions, Rembe reported. Tamarac supports a focused rebalance where the user can rebalance only a specific model or asset class across all accounts, he said.

Fava noted that iRebal does support model of models, which is a feature that can greatly improve efficiency. It allows the advisor to focus on small number of core models and then create a custom blend for each client. It would be possible to manage just two core models, one fixed income and one equity, yet still have a custom allocation for each client, Fava said, and the system will automatically propagate any changes through all of the blended models.

What is your company’s policy for post-implementation technical support?

iRebal, TradeWarrior and TRX all offer unlimited technical support as part of their standard product offering. Tamarac has a fixed number of support hours available per month. However, out of their current base of 550 clients, only one client has ever gone over this number, Rembe assured us.

What new features do you have in the pipeline for 2013?

Rembe said that Tamarac is planning to provide tighter integration with the EnvestNet platform (no surprises there) and also more support for alternatives and options.

The other three vendors said that they were unable to answer this question at the present time.

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17 Responses

  1. A great article, however do any of these do portfolio rebalancing using the underlying asset classes? This is extremely difficult due to a phenomena known as the curse of dimensionality, however at CalculationCloud.com we have developed a solution to solve this.

    If the underlying asset classes are not considered when rebalancing, how confident can you be that the exposure to a particular asset matches a clients circumstances.

  2. This is a great summary of the panel discussion, Craig. I wanted to clarify a few points in your article. Although I noted that cost is an important factor in making a software choice, I described 3 aspects of cost: license fee, time and effort involved with implementation, and value of utilization. The cost of the license fee pales compared to the value of utilization.
    You also referred to Dave Drucker’s ROTI white paper, which costs $99 to access. TRX offers an ROTI white paper for free at http://www.trxpert.com.
    Finally, TRX not only identifies capital loss distribution avoidance opportunities at the end of the year, it produces the trades for those opportunities that meet the advisor’s definition of beneficial in minutes. This is a patent-pending functionality.
    Thank you for this opportunity to explain a few of the finer points and thank you for the informative article! Letting advisors know that they have automation options to help them with the overwhelming task of rebalancing serves the industry well!

    1. Sheryl,
      Your feedback and clarifications are always welcome! Would you be able to provide the exact URL for the ROTI white paper? I couldn’t find it on your website.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com