Comparing The Best Portfolio Rebalancing Software Tools

Comparing The Best Portfolio Rebalancing Software Tools

Executive Summary

For many advisory firms, portfolio rebalancing technology is one of the single most important pieces of technology that they have. While other software is certainly important – from a CRM for managing client relationships, to eSignature for streamlining account opening and administrative processes, to financial planning software for helping guide your clients long-term financial plan – arguably no other piece of software is impacting your clients’ portfolio on a regular basis more than rebalancing software. Yet, amongst a sea of different options and software features, it can be hard to know which solution is best for you and your clients.

In this guest post, Craig Iskowitz, CEO and founder of Ezra Group (a management consulting firm providing advice to the financial services industry on marketing and technology strategy), shares some of his own thoughts on the best portfolio rebalancing software available, including portfolio management features, pricing, integrations, user experience, and more! Reviews include all the major rebalancing software providers, from iRebal and Tamarac, to TradeWarrior, tRx, and RedBlack!

And arguably, in today’s environment, the need for rebalancing software is even more urgent to stay competitive, with the rise of “robo-advisors” that can already automate rebalancing, along with tax loss harvesting. The good news, though, is that as the original “robo” solution for portfolio automation, all the major rebalancing software platforms can handle this… and more! But only for advisors who are willing to move away from portfolio rebalancing Excel spreadsheets!

And so, whether you currently have a rebalancing solution and want to ensure it is up to date, know that it has been a while since you’ve evaluated rebalancing options and want to get started with the process, or haven’t been convinced of the value of rebalancing software and are still using spreadsheets or calculating rebalance trades by hand… I hope that you find this guest post from Craig to be helpful!

Author: Craig Iskowitz

Guest Post

Craig Iskowitz is CEO and founder of Ezra Group, a management consulting firm providing advice to the financial services industry on marketing and technology strategy. Ezra Group works with RIA’s, broker-dealers and banks to help them make sound technology decisions, identify growth opportunities and energize their marketing.  Craig is also the publisher of the blog Wealth Management Today, which provides in-depth analysis of trends and issues facing the wealth management industry. Craig can be reached at [email protected]

 For many independent advisors (at both RIAs and broker-dealers), there is no piece of technology that is more important to their business than portfolio rebalancing software. Sure, your CRM helps drive new business, eSignature helps streamline account opening and financial planning software helps clients understand their long-term goals. But portfolio rebalancing software touches every client’s portfolio on a regular basis, and is the engine that implements and automates the firm’s investment management strategies.

As a result, choosing the right portfolio rebalancing tools can be the difference between an efficient investment back office, and one that is constantly struggling to keep up with business growth.

Fortunately, portfolio rebalancing software has come a long way from the days when running client portfolios through an Excel spreadsheet or Microsoft Access was considered a pioneering use of technology. Advisors no longer need to be sold on the merits of automating what could otherwise be a time-consuming and risk-prone task. That has shifted the conversation from “Should I automate rebalancing?” to “Which automatic asset rebalancing tool is right for me?” The wealth of choices may seem like a good problem to have, but the weight of the decision is real – especially if you consider the typical costs of broker-dealer or RIA software for portfolio rebalancing (it’s usually not rebalancing freeware!), which is typically on top of the required investment portfolio accounting and performance reporting software as well.

The good news is that most modern rebalancing solutions come with an impressive array of what has become “standard features”, akin to running your advisory firm like a “robo-advisor”. From cash management to working around substitute securities and capital gains avoidance, tax-loss harvesting and asset location, leading portfolio rebalancing platforms offer solid baseline functionality no matter which tool you choose.

All of the five tools in this financial advisor rebalancing software comparison have these standard features:

  • Automated portfolio rebalancing
    • Tolerance bands, trading minimums and thresholds
    • Cash management
    • Multiple approval levels for trading and compliance oversight
    • Ability to consider held-away assets
    • Household-level management
    • Ability to tag securities for particular client restrictions
  • Security or Asset Allocation Model management
    • Unlimited portfolio models containing equities, mutual funds or ETFs
    • Models of models (Composite models)
    • Substitute security equivalents (Assigning a non-model security to be equivalent of a model security, so it will not be sold)
  • Tax management
  • Flexible user interface for advisors
    • Configurable – adding/removing/reordering grid columns, editing global settings

In a way, this state of the industry, especially with the flexibility of RIA software and most custodial platforms, makes the advisor’s choice that much tougher. Sure, all the tools have the standard features and offer some degree of configuration – but which one is best for me?

This analysis attempts to break down the decision by providing a portfolio rebalancing software comparison highlighting the unique features, strengths and shortcomings of five popular solutions:

(Click on the software above to skip to that section!)

TradeWarrior Review And Pricing

While we were finishing the edits to this article, the news broke that TradeWarrior had been acquired by Oranj, a provider of a digital wealth platform for financial advisors.  Oranj has been overshadowed by better known robo-platform players such as Jemstep and AdvisorEngine. While they have flown under the radar so far, this deal will leapfrog them into a different space where they will compete with firms like Orion Advisor Services, Morningstar and Envestnet. This is assuming that they can complete the integration successfully before other digital vendors catch up.  

TradeWarrior is one of those products that often flies under the radar since they do not have a well-known parent company or spend gobs of money on marketing. But as a stand-alone portfolio rebalancing tool, TradeWarrior is a good choice for advisors who want a solid range of functionality at an affordable price point. Recent updates to the platform include a web-based front end, and FIX connectivity for straight through trade processing.

TradeWarrior User Experience

Advisors who use TradeWarrior for the first time will find that the learning curve is pleasantly short. The dashboard view, with its ribbon-and-tabs work environment, will look familiar to anyone who has ever used a Microsoft Office product. The layout of the screen does not have the number of options and preset workflows of more complex products, such as RedBlack, as if they have opted to keep the design deliberately minimal. The result is an open layout and a clean look and feel.

Product look and feel can be an important decision point when comparing products that have much of the same functionality. TradeWarrior anchored their design with the menu bar on the left side of the screen, similar to RedBlack. Whereas the other three tools have their menu bars at the top of the screen. Each advisor needs to decide which layout is more ascetically pleasing to them.

We like the multi-color tag functionality, which is helpful for organizing accounts into groups for more efficient processing.

The product can be white-labeled, which is a required option for institutional clients. A mobile version of the tool is available for advisors on the go. In terms of initial set-up, any rebalancing product will require a certain amount of time up front, but TradeWarrior is more intuitive than others.

TradeWarrior Portfolio Rebalancing & Model Management

TradeWarrior has considerable flexibility when it comes to working with security or asset allocation models. The product offers three main levels of modeling: security models, class models that target specific asset classes, and models of models. All security types are fully supported, and the platform can bring held-away assets into the analysis through account aggregation. Relative or absolute tolerance bands can be created at the global level, and multiple custodians (including Schwab, Fidelity, TD Ameritrade, and Pershing, as well SSG, TradePMR, and other smaller RIA custodians) can be supported simultaneously (though as discussed below, the depth of straight-through trade processing amongst custodians does vary).

After the initial setup is completed, the bulk of the work is done in the Trading and Rebalancing tab. Review is made easy with the ability to sort and filter portfolios: for example, an advisor might sort clients to identify ones that have not traded in the previous six months, or scan for portfolios that are currently out of balance.

One of TradeWarrior’s strong points is its ability to handle household rebalancing. Advisors can manage multiple accounts together and compare the result against a single model. The resulting rebalance generates fewer trades, since they are evaluated at the household level. Fees can also be handled at this higher level, so the client receives a single statement rather than one for every underlying account.

The product can handle a variety of restrictions including “do not sell” to “do not trade” (the latter allows advisors to exclude a position from rebalancing and trading as if it did not exist). Advisors get to define cash minimums and distributions, set trade minimums, and impose tax-based restrictions.

TradeWarrior Tax Management

Beyond the standard tax management features, TradeWarrior performs a real-time estimate of the tax impact of proposed trades. It also incorporates tax lot analysis into its rebalancing logic, so it can recommend which tax lot to sell to that is most beneficial to the client (including as a part of its tax loss harvesting process).

TradeWarrior Trading and Order Management

The trade review screen allows advisors a fully customizable view into recommended trades, including the ability to drill down into details by account. Automated alerts are user-friendly and can either “hard stop” the recommended trade, or present a softer informational message for the advisor. Advisors will appreciate that proposed trades can be edited from inside the review screen.

The latest iteration of TradeWarrior offers straight through processing for routing trades, but only for accounts held at either Fidelity or Schwab. This functionality is powered by Raptor Trading Systems and represents a considerable upgrade over the old way of doing things. No more downloading trade blotters, waiting around for uploads, or worrying about sending the wrong trade files!

A negative for TradeWarrior is that they do not have direct connectivity to any other custodians. Orders generated by the rebalancer for TD Ameritrade, Pershing or others must be manually exported into a separate file and then uploaded for each custodian. This is not much of an issue for small RIAs, or those with only a single custodian. But larger firms that have heavier trade volume and multiple custodians would have higher operational costs due to manual effort, as well as increased recon costs from potential trade errors.

TradeWarrior told us that they are working with TD Ameritrade to connect to their system for sending trades, but they did not have an estimated date for this to be completed.

TradeWarrior Integrations

When it comes to other third party software, TradeWarrior plays well but the depth of integration varies. For example, their Riskalyze connection will pull data automatically. On the other hand, the connection to Advent AXYS or Morningstar requires a manual file import and export. Interface connectivity is also available for portfolio accounting vendor Orion Advisor Services and portfolio management software Blue Leaf.

TradeWarrior leverages multiple integrations to help position themselves against end-to-end platforms like Envestnet | Tamarac. Their clients use some of these combinations and build a lightly integrated CRM, Portfolio Management, and Reporting solution:

  • Redtail + AssetBook + TradeWarrior
  • Junxure + BlackDiamond + TradeWarrior
  • Salesforce + Orion Advisor Services + TradeWarrior

Additional integrations are on the roadmap, so advisors that are considering an investment in TradeWarrior should get an update on whether the systems that are part of their workflow will be included or not.

TradeWarrior Pricing

There are no two ways about TradeWarrior’s price point: given its solid functionality, the product is very affordable. The price combines a base component of $4,000 per firm and an asset-based fee, which ranges on a sliding scale from 0.3 bps down to 0.1 bps depending on the AUM being managed via the platform. TradeWarrior does not offer a free version of the product or a free trial period. But, there is a 90 day test-drive period that allows advisors to cancel for a full refund.

tRx – Total Rebalance Expert Review And Pricing

Total Rebalancing Expert, or tRx for short, was once an independent product, but was acquired by Morningstar in late 2015, and can now be purchased as a part of the Morningstar Office Suite. Access to Morningstar intelligence data has become a key selling point for tRx.

Another selling point is its superior capability when it comes to tax awareness, which is not surprising considering that its founder, Sheryl Rowling, is a CPA financial planner. Recent additions include deeper integration with Schwab OpenView Gateway to enable trade execution directly with the custodian.

tRx User Experience

Let’s get the bad news out of the way: we are not big fans of the tRx user interface. Compared to some of the other products, the dashboard and other screens look clunky. While the basics of portfolio review are all there, the layout lacks the workflow structure and depth of RedBlack, and does not have the benefit of a familiar layout like that of TradeWarrior. The ability of the dashboard to be customized with a client logo is a small consolation.

One aspect of the workflow that we did like is the convenience of client-ready reporting. The platform makes it easy to demonstrate the savings that result from tax-aware decisions, and by extension the value added by the advisor.

A recent web-based update to tRx dubbed “tRx Edge” allows advisors to access the platform from anywhere (as notably, the original software was/is still installed to a local server in the advisor’s office). The recently released mobile version of the product rounds out the convenience factor nicely.

tRx Rebalancing & Model Management

tRx allows for an unlimited number of models to be created, but no “models of models”. Advisors who want to approximate that capability have to use a subclass blend (mutual funds broken down into subclasses). This seems like a kludge to us and is not as efficient.

In addition to the standard household account management functionality, tRx offers advisors an option to rebalance across a set of households to boost efficiency. The platform also has strong cash management capabilities: cash needs can be defined in absolute or relative terms, and set at the account or household level.

Regarding workflow management, tRx is built with 5 levels of review and authorization – more than any other platform we have reviewed, with the exception of Tamarac. Advisors and compliance officers can customize access privileges at various user levels, and there is an extensive audit trail.

The last component of the rebalancing functionality to highlight is account aggregation. Within the tRx universe, it is powered by ByAllAccounts (which has been owned by Morningstar since 2014). Advisors can opt to include held-away assets in the portfolio rebalancing process for a more complete picture of the client’s holdings. The portfolio rebalancing algorithm will recommend trades for held away assets only as a last resort, generating a client-ready report for recommended 401k trades. If you happen to like or use a different account aggregator, you are out of luck: Only ByAllAccounts is supported at this time.

tRx Tax Management

Without question, tRx’s strength is in the area of tax management. The program offers the deepest tax awareness of the platforms we have looked at. Tax loss harvesting is fully automated and run daily – interestingly, the platform has done this from the very beginning nearly a decade ago, well before robos made that approach standard.

Asset Location optimization is established at the security subclass level; advisors can then choose individual securities for trades from within the subclass. tRx is the only rebalancer that taps into Morningstar research to create the asset location hierarchy (location optimization ranking tables). That is a considerable advantage because it removes the guesswork out of the process. It also makes the process more efficient; compare it with TradeWarrior, which comes with a blank set of defaults and requires manual data entry.

An interesting feature of the tRx rebalancing tool is the advisor’s ability to turn location optimization on or off depending on relative cost vs. tax savings. If the option is “on”, the program generates a review summary that shows the results of both algorithms side by side. While the ability to compare the two outcomes sounds like an advantage, we thought that the summary itself was a bit confusing. We had difficulty summing up the totals at a glance to determine which trade proposal was best.

tRx Trading and Order Management

A recent release of tRx benefited from the addition of direct trade execution for securities custodied with Schwab. Advisors still have to generate an export trade file for all other custodians, which means tRx is not a great fit for RIAs that engage in heavy tactical trading. Additional trade order management integration initiatives are on the product’s roadmap.

tRx Integrations

tRx has an unusual limitation regarding importing data. It cannot take custodian files directly. Data on client positions and transactions can only be imported from an RIA portfolio accounting/portfolio management system such as Schwab PortfolioCenter, Advent AXYS or Orion Advisor Services. This should not be a problem unless you are using an unusual portfolio accounting software system.

Prior to its acquisition by Morningstar, tRx had created some successful partnerships with other vendors. Their 2014 Orion joint venture created a solid portfolio management and rebalancing solution that received favorable reviews from advisors. They also support integration with Black Diamond and are working on new collaborations with other portfolio management platforms. That effort is a part of their “API as a service” offering, meant to make Morningstar’s data and products more accessible.

Compatibility with the Morningstar Office Suite, including its wealth of research and analysis data, is now a key selling point for tRx. Morningstar plans to leverage their three-year collaboration with Redtail Technology, by bundling Morningstar Office tRx and ByAllAccounts with Redtail to offer advisors a powerful end-to-end technology stack.

Morningstar tRx Pricing

Morningstar tRx comes with a middle-of-the-road price tag of $6,000 per year for the stand-alone application before discounts (it gets lower if the rebalancer is purchased as part of the Morningstar Suite). The ultimate price varies by firm based on the complexity and the number of accounts to be serviced. Resellers and partners like Orion may offer additional discounts. There are no per seat charges, and Morningstar has recently eliminated all tRx set-up and installation fees.

Rebalance Express by RedBlack – Review And Pricing

Rebalance Express by RedBlack is a stand-alone tool that has a strategically “narrow and deep” focus on rebalancing and trading. That explains the product’s solid modeling capabilities, impressive list of integration partners, and the best trading workflow support out of the stand-alone rebalancers we have reviewed.

RedBlack has close to 200 clients with approximately $480 billion in assets managed on their platform. Their average client AUM is $3 billion, but the median is just $1 billion. They count as clients more than 100 single and multi-family offices, pension funds and foundations.

With its extensive OMS connectivity, support across all asset types, and sophisticated workflows, RedBlack is a good choice for banks and larger RIAs with more complex rebalancing needs.

RedBlack Rebalance Express User Experience

RedBlack opens with an intuitive dashboard: a list of workflows on the left and familiar action commands across the top. Advisors can use drag-and-drop widgets to customize the dashboard so that the tools they need most are at their fingertips. Some of the options include a view into asset class exposure, actionable to-do lists, and real-time price lookup. We like that this degree of responsiveness and customization is available to the user via simple configuration options without the need to involve the vendor.

The list of workflows is extensive and can be augmented or pared down as the needs of the practice change. One we would like to highlight is investment policy compliance monitoring. RedBlack users can import data from financial planning tools such as MoneyGuidePro to create investment policy parameters. Investment policy compliance checks can be automated and run daily. That alone is not unusual; what is worth noting is the convenience with which compliance officers can review alerts and drill down into each account to see past violations, issue status, and comments. They can also filter alerts to create custom reports to send to each advisor for follow-up.

RedBlack also offers a limited proposal generation feature that includes allocation reports that can be white labeled with the firm’s branding. We would like to see these reports integrated with popular CRM software like Redtail, Junxure or Salesforce to improve efficiency.

Held-away account aggregation is provided through ByAllAccounts and allows advisors to bring in a variety of externally held assets from 401(k)’s to SMAs and alternative investments. RedBlack is currently available as a desktop or a cloud solution. There is no mobile version available at this time.

RedBlack Rebalancing & Model Management

Similar to TradeWarrior, RedBlack allows advisors to create and rebalance three types of models to support a variety of investment strategies: security, asset class, and models of models. Full support of all asset classes means that the algorithm can handle everything from variable annuities to private equities.

Advisors can define minimum trade sizes and minimum held positions before auto-liquidation, as well as “never buy” rules. The option to create restrictions at the account, household, or global level allows for built-in efficiencies and ease of compliance.

Approximately 85% of RedBlack clients use models and most of those utilize the models of models feature.

RedBlack portfolio tracking for drift reporting is superior. While basic drift monitoring is the staple of modern rebalancing platforms, RedBlack drift reports are available at the account or household level, and advisors can choose to highlight relevant notifications on their dashboards. What’s more, there is advanced ability to drill down into the reports, choosing between multiple style, sector and security data views to support advisor decision-making.

One feature that no other stand-alone portfolio rebalancer provides is support for ‘true’ Separately Managed Accounts (SMAs). The reason that we use the qualifier ‘true’ SMAs is because while almost every vendor says that they support SMAs they really do not.

What they support is taking a copy of an external money manager’s strategy and entering it manually into a model. This is not the same as supporting for SMAs directly in your product as RedBlack does.

Most RIAs do not use SMAs and many of the ones that do access them through TAMPs or other platforms, for larger RIA’s that invest in SMAs directly, RedBlack is the only point solution rebalancer that can support them.

RedBlack Portfolio Rebalancing Tax Management

While RedBlack does not have the depth of tax expertise of tRx, it offers some of the tax sensitive functionality. Asset location optimization is available, along with tax loss harvesting at the position or tax lot level. Unlimited sets of tax rules can be created at the account, asset classification, or household level. Custom thresholds for action cut down on the “alert noise” and help keep the dashboard clean and actionable.

RedBlack Portfolio Trading and Order Management

Trading and order management is one of the strengths of RedBlack. They offer connectivity via FIX protocol that allows for straight-through processing of trades with over 450 sell-side firms. The result is a simplified operational workflow, better efficiency and improved accuracy.

One advantage of using FIX connections for routing trades is that executions can be received and acknowledged intra-day, which means trades can be allocated to the corrected accounts the advisor dashboard can be updated with order status in real-time. Most other portfolio rebalancers rely on receiving an overnight file import from the custodian, which means that trades are not reflected in client positions until the next morning.

Trade reconciliation can be a time consuming and tedious process even when using portfolio rebalancing software, since the process still relies on manual effort to resolve breaks. RedBlack has developed a technology solution where each day’s trade file is automatically reconciled against the next business day’s portfolio management system or custodian data to identify missing trades, quantity errors, and pricing variances.

This check can be run daily or across any given date range to identify errors. By running these tools daily, it reduces the volume of variances to be researched and resolved at month-end, eliminating what can be a considerable time drain and bottleneck.

RedBlack Rebalancing Software Integrations

RedBlack’s open architecture platform means deep integrations, including over 50 interfaces to custodians, portfolio accounting systems, TAMPs, pricing systems and more. The list covers all major accounting platforms and custodians, as well as trust accounting systems. Some integrations are deeper than others: for example, Morningstar requires a flat file import and export, while the Orion-RedBlack combination can share data automatically.

RedBlack Rebalance Express Pricing

Pricing for RedBlack is driven by AUM, number of users, and the number and type modules selected. The pricing structure starts at $10,000 annually, and provides advisors the ability to mix and match modules to create a custom solution with all the functionality that’s needed.

TD Ameritrade’s iRebal – Review and Pricing

iRebal is a rule-based rebalancing tool offered by TD Ameritrade. It was the original rebalancing software for financial advisors, first created in 2004, and later acquired by TD Ameritrade in 2007. Its strengths include the depth of integrations within TD Ameritrade’s VEO One environment, as well as its price (iRebal is free for accounts custodied with TD Ameritrade, as long as you use the web-based version; advisors can purchase a server-based, which is not free, for multi-custodial use).

The iRebal portfolio rebalancing software is highly efficient and an obvious choice for advisors who only custody assets at TD Ameritrade. With the new iRebal Model Market Center announced in February and a recent addition of Advisor Engine’s seamless client onboarding, VEO One might just be the competitive edge that gets users to overlook the lack of multi-custodian support.

iRebal User Experience

The iRebal user interface design relies heavily on the look and feel of TD Ameritrade’s corporate standard that is also used for their institutional trading services. It can be described as clean, modern, and easy to navigate but is also a bit sterile, which is not necessarily a bad thing when it comes to presenting data that is critical to your business. You would not want to be distracted by a fancy UI when trying to manage dozens or hundreds of trades.

The majority of iRebal screens appear to have been designed carefully in order to use the space efficiently and fit in the most functionality without creating clutter. There is extensive use of split screens with separate sliders to scroll columns or data populated with dropdown lists, check boxes and number entry.

The Home Screen, which we also refer to as the advisor’s dashboard, is composed of multiple widgets that can be added or deleted and rearranged to display key data points that are needed to manage a book of business. The Status widget provides the most useful information and would be used by operations staff to schedule their activity by highlighting items such as approved trades, incomplete models and portfolios that require attention.

iRebal uses up-to-date position and pricing information, courtesy of deep integrations within the TD Ameritrade ecosystem. That is an upgrade compared to other products’ use of previous day’s closing prices. Access to current pricing and positions allows advisors to base their rebalancing and trade decisions on the best information available – which presents a considerable advantage.

Another strong point for iRebal is its capability to support imported fee tables. It means that advisors can use accurate expense projections during rebalancing to ensure that there is sufficient cash available for fees. The only other rebalancer that has this feature is TradeWarrior.

One significant gap in iRebal’s workflow is its lack of integration with an account aggregator. The tools does support held away accounts, but only through manual file import. While it does allow advisors to include 401(k) accounts into the rebalancing logic, the manual import step is cumbersome. The platform won’t generate sale orders or recommendations for externally held accounts, unlike tRx that can generate client-ready reports with recommended 401(k) trades. An integration with an account aggregator would be more convenient and a great way for an advisor to demonstrate the value of holistic financial advice to a client.

iRebal is available as a both a web-based platform and a desktop version. For this review, we are only discussing the web-based version.

iRebal Portfolio Rebalancing & Model Management

iRebal comes with a robust set of rebalancing options. Advisors can run a full rebalance, manage cash only, or engage in directed trading. Tactical rebalancing for tax loss harvesting is available, as well as the ability to adjust a single security to target, or to replace securities across multiple portfolios. In this, iRebal is similar to RedBlack.

Other similarities to RedBlack include three levels of modeling capability (security, asset type, and models of models). Advisors also have access to full household-level functionality. The flexibility of the rebalancing logic is extensive: users can create equivalencies and set trade minimums. “Never buy” feature has been recently added to the modeling algorithms.

Some of the advanced features of iRebal include a setting to avoid early redemption penalties for selling mutual funds. All of the top 5 rebalancers can avoid wash sales due to tax loss harvesting, but only iRebal can automatically invest the proceeds into a substitute security and then alert the advisor that 30 days have passed.

Automated pre-scheduled rebalancing is another capability worth highlighting. It is particularly important for advisors who need to scale and address the needs of hundreds of clients in a time-efficient way. Without the ability to schedule rebalancing, advisors must track the timing of rebalancing for every account, and set up reminders to ensure no account slips through the cracks. That creates a need for a separate manual process that is time-consuming and fraught with risk.

Because of the tool’s deep integration with the custodian, the program logic allows advisors to set zero cash targets. This low level of cash targets is risky at best or even impossible without the backing of a custodian. TD Ameritrade offers to float cash to settlement for all accounts in their custody. The arrangement gives advisors an opportunity to avoid debit balances and margin interest charges, and is attractive for those who want to maximize invested balances and control trading costs.

The last important offering to highlight in this section is the recent announcement of the upcoming iRebal Model MarketCenter opening. This “model portfolio supermarket” will be available to TD Ameritrade users. Initially, there will be no third part investment manager models available – but even internal models available on this scale have the potential to expand the choices advisors have when it comes to managing accounts.

iRebal Rebalancer Tax Management

While no tool has the depth of tax management of tRx, iRebal is quite capable in its own right. Asset location optimization function allows advisors to rank securities by tax impact. In order to take advantage of this portfolio rebalancing algorithm, clients must have at least one taxable account (and at least one tax-preferenced account as well). Advisors enter the security rankings into the Security Master manually – common for modern rebalancers, although tRx is a notable exception due to its ability to pull Morningstar research data into the default tables.

iRebal offers a considerable number of options when it comes to tax loss harvesting. Advisors create custom thresholds to trigger position or lot-level sale. Thresholds can be defined in absolute terms (i.e. $X of loss) or set as an “annual zero net capital gain” target for the overall portfolio.

iRebal has several advanced tax loss harvesting features. For example, the algorithm continues to monitor positions and prices for up to 31 days and will alert an advisor to unwind replacement positions if necessary. If another rebalancing is executed within 30 days of a tax loss harvest sale, the system will automatically avoid selling replacement securities or buying back previously harvested positions.

iRebal Portfolio Trading and Order Management

After a rebalancing cycle has been completed, advisors can review the recommended trades and edit them if necessary. After the trades are approved, they are forwarded to the iRebal order blotter. Only users with Trader-level permission can access the blotter, which allows for segregation of duties and an additional degree of control over the trades. From the blotter, the trades can be executed straight through to the market. The entire process is streamlined, with block trades and trade allocations executed automatically for greater efficiency. Since only accounts custodied with TD Ameritrade are supported, there is no need to reconcile the data.

To expand on the user permission levels, iRebal offers several role-based levels of access that allow users to edit and approve trades, manage models, and edit system settings. This functionality is similar to RedBlack and is particularly useful for large RIAs.

One feature of iRebal’s trading and order management workflow that we particularly like is the explanation reports. If a rebalancing cycle generates a scenario that requires an explanation, a report is generated to show reasons why buys and sells were made or not made. Advisors can see special notes on accounts that were fully liquidated, restrictions that prevented specific buys or sells, as well as buys that were stopped because of a potential wash sale violation. This is a great reference document to review internally or with clients.

iRebal Integrations (via TD Ameritrade VEO One)

iRebal integrations are a key selling point for the tool, and with good reason. The platform is part of TD Ameritrade’s new VEO One universe, which includes Junxure, Redtail, and Salesforce for CRM; eMoney, Envestnet/FinanceLogix, and MoneyGuidePro for financial planning; Advent/Black Diamond, Morningstar, and Orion for portfolio management; DocuSign, LaserApp, Laserfiche for digital enterprise content management, and the ThinkPipes trading platform. Single sign-on across the ecosystem and deep data sharing capabilities make this a powerful set of tools indeed.

iRebal Pricing (inside or outside TD Ameritrade)

For TD Ameritrade customers, iRebal is without doubt the most economical of the rebalancing tools we have reviewed because it is offered for no charge. What can be better than free?

Advisors who want the iRebal functionality but have accounts at multiple custodians can purchase the desktop (or server-based) version of the product. The price for this starts at $20,000 annually for firms with less than $450 million in AUM, and goes up from there.

Envestnet | Tamarac Review And Pricing

The Tamarac portfolio rebalancing software solution was acquired by Envestnet in 2012 to power Advisor Rebalancing, which is now a part of the Advisor Xi suite (along with Advisor View that provides portfolio analysis and billing, and Advisor CRM). While it can still be purchased as a stand-alone solution, most new clients purchase the entire platform.

It is a robust and expensive rebalancer. The custodian-agnostic open architecture and deep integrations make it a great fit for large, independent RIAs that need a sophisticated and efficient solution. Over 800 RIA’s now use part or all of the Tamarac product suite with over $600 billion in AUM processed. Tamarac specializes in large firms with 35% of $1 billion AUM RIA’s (more than 180 firms) on their platform.

In recent news, Envestnet | Tamarac received the top honors as best portfolio management application at the Family Wealth Report Awards in 2017.

Envestnet| Tamarac User Experience

Tamarac’s developers are equally focused on creating robust features and good esthetics. For users, that means the best of both worlds: a clean and uncluttered look, combined with impressive functionality and an intuitive ease of use. Screen layouts are simple, designed to guide complex workflows without an overwhelming array of options.

The menus across the top of the interface include Rebalance & Trade, Reports, Accounts, Models, Securities, Upload, and Setup. Each option has a drop-down menu to guide the advisor’s workflow. The dashboard, with its actionable alerts and compelling graphics, provides a functional hub and a good start to the advisor’s workday.

One of the best aspects of using Advisor Rebalancing is the ease of sharing data between multiple applications. The rebalancer is deeply integrated with Advisor CRM and Advisor View, but the vendor does not limit users to solutions within the Envestnet universe. Advisors that like Salesforce and Salentica CRMs can enjoy the same seamless user experience as those who use the built-in Advisor CRM product. A similar approach describes the integration with FinanceLogix (part of the ENV platform since 2015) and outside financial planning tools like MoneyGuide Pro and eMoney Advisor.

Deep integrations mean that data can be shared in both directions. This creates a smooth and highly efficient user experience: no need to export files, enter data twice, or switch between screens. Changes to account settings will flow through all connected applications automatically. Workflows can be triggered in one application and flow through to others. For example, if a client calls to request a cash distribution, the advisor can initiate the action in Advisor CRM which will then automatically create a workflow in Advisor Rebalancing.

The clean and intuitive interface does not detract from Advisor Rebalancing’s considerable degree of sophistication. To help new users get the most out of the tool, and to support experienced users as the needs of their practices shift, Tamarac University offers monthly classroom-style seminars on both coasts. An online version of the orientation course is an option for advisors who prefer a self-directed approach.

Cloud, desktop, and mobile versions are available.

Envestnet | Tamarac Portfolio Rebalancing & Model Management

Advisor Rebalancing supports a variety of modeling methodologies, including models of models with up to nine nested tiers. Users have considerable flexibility to isolate model components and combine them to create new models. The tool allows advisors to rebalance the entire portfolio, or conduct tactical rebalancing that is focused on specific models, asset classes, or individual securities. Rebalancing can also be executed with the goal of raising or investing available cash.

Program logic uses real-time prices for U.S. equities and ETFs as listed on U.S. stock exchanges. Real-time balances are available for all 4 major custodians. That saves advisors the additional step of importing or looking up current numbers, and enables them to optimize liquidity levels without creating cash shortfalls.

Speaking of cash management, advisors will find the Tamarac-powered tool to be highly capable in this area. Cash reserve tolerance bands allow advisors to maintain the right levels of cash reserves to match client needs – without compromising modeling, account restrictions, or tax sensitivity. Cash reserves can be created at the account or household level. Advisors will also appreciate that any security can be treated as cash, which creates flexibility in managing liquid assets.

Envestnet’s 2015 acquisition of account aggregator Yodlee enables advisors to view held-away accounts and use them for holistic rebalancing. Clients who use a different account aggregator have the option of using on their own portfolio accounting system data to accomplish the same result. A late 2016 technology release enables advisors to add third party liability data like credit card balances, mortgages, and loans. That functionality is meant to enable deeper planning discussions and help advisors make better portfolio management decisions.

Envestnet | Tamarac Tax Management

Advisor Rebalancing comes with tax sensitivity functions that are similar to iRebal. Loss harvesting strategies can be applied at the individual security level or across accounts. We like that the cash generated from tax loss harvesting trades is automatically reinvested, which allows advisors to manage liquidity, optimize investments and take advantage of tax loss harvesting opportunities.

Envestnet | Tamarac Portfolio Trading and Order Management

The most recent iteration of Advisor Rebalancing comes with improved trading and order management workflows. Previously, users had to generate trade files within the rebalancer that were then uploaded for execution to each custodian – a manual process that required additional steps and had room for errors. Today, the process is seamless for Charles Schwab, Fidelity and TD Ameritrade; similar straight-through processing integration with Pershing is underway. Orders can be tracked from creation through settlement, and trade reconciliations are automated.

Envestnet | Tamarac Integrations

Deep integrations with tools within the Envestnet environment are to be expected, but they do not stop there. Envestnet’s philosophy is to combine a wealth of internal offerings with the convenience of third-party integrations. This approach is meant to give advisors the ability to pick and choose tools for a customized technology stack, and addresses the concern that some advisors might have around being locked into products that are sub-optimal for their needs.

In addition to a wide range of the existing integrations including Salesforce, Salentica CRM, and MoneyGuide Pro, more capabilities are on the roadmap. Envestnet’s goal of offering full CRUD (create, read, update, delete) functionality by the end of 2017 translates into giving advisors more options, streamlining workflows, and enabling greater insights and efficiencies.

Envestnet | Tamarac Pricing

Pricing is based on AUM and starts at $10,000 per year, before discounts for bundling the Advisor Rebalancing with other Envestnet solutions. Multi-year licensing contracts can offer another money-saving opportunity.

Summary: Portfolio Rebalancing Software Feature And Cost Comparisons

What we have here are five products that perform the same job, but go about it in very different ways, and at widely varying portfolio rebalancing software costs.

Any RIA that custodies only with TD Ameritrade has no good reason not to use iRebal. TradeWarrior is a cost-effective option for smaller RIA’s that don’t custody at TD or use multiple custodians. Total Rebalance Expert is also a strong choice for small RIA’s, especially those that already use Morningstar Office or who require more in-depth tax features. Tamarac can be used by RIA’s of any size, from the smallest to the largest, and their robust custodian connectivity improves operational efficiency. But their rebalancer can be overly complicated for some. RedBlack is definitely targeting itself as family office software and for larger RIA’s that rely heavily on alternative investments such as limited partnerships or require OMS connectivity.

And let’s not forget that these are just the top five options. There are a number of other products out there that offer portfolio rebalancing either as a standalone product or as part of a suite of services. These include:

  • Orion Advisor Services – They started out as purely a portfolio accounting outsourcer and have morphed into a full-features wealth management platform with the launch of their Eclipse release at the T3 Advisor Technology conference.
  • Advisor Software (ASI) – Known more for their behind the scenes APIs that power some custodians and other vendor solutions, they have been building out their own front-end and digital advice solutions.
  • SoftPak MARS – A mean-variance optimizer married to a portfolio rebalancer, MARS is used primarily by portfolio managers in large bank wealth management groups. Combined with the Northfield tax optimizer, MARS is a powerful solution for RIA’s that follow a returns-based optimization methodology.
  • Custodian Workstations – Fidelity WealthCentral (and the coming WealthScape), Charles Schwab PortfolioCenter (and the coming PortfolioConnect), and Pershing NetX360 are used by thousands of RIAs, and all have basic rebalancing functionality. How soon you outgrow them depends on the complexity of your investment strategies and the number of accounts you are managing.

If you are an RIA that still does portfolio rebalancing with (Excel) spreadsheets, then any of these products would be a huge step into the 21st century for you. If you are using the free portfolio rebalancing software at an RIA custodian, any of these would give you more control over your portfolios, and automating investment software would probably reduce costs for you and your clients. If you are already using one of these five, then Bravo! You already understand the value of portfolio rebalancing to a successful advice business. But maybe one of the other four options would be better for you? We suggest you contact one or two of them and schedule a demo.

So what do you think? Do you currently use rebalancing software in your advisory firm? Or are there key features that rebalancing software today is still missing? Please share your thoughts in the comments below!

(Michael’s Note: And if you’re interested in further advice and assistance in selecting (and implementing) the best portfolio rebalancing software for your advisory firm in particular, you can reach out for Craig directly at [email protected], or see further information Ezra Group.)

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