Want to streamline the investment strategies you can offer to clients and easily keep asset allocations optimized in portfolios? There’s only one solution an RIA needs to have in its stack to make this work easier: portfolio rebalancing software.
While experienced traders and asset allocators may think they know all the rebalancing options available to them, the industry has seen a wealth of innovation over the last several years, introducing ever-more-sophisticated capabilities to increase a firm’s operational efficiency – and in turn, its client satisfaction.
In this post, we delve into the key features, benefits, and considerations for selecting the best portfolio rebalancing software.
The Evolution of Portfolio Rebalancing Software
The days of advisors relying on spreadsheets or manual calculations for rebalancing portfolios are long gone, or if not, relegated to the further corners of the wealth management industry for a select few.
Instead, portfolio rebalancing software now enjoys center stage in an RIA’s tech stack as one of the most essential apps for a well-run firm.
These automated tools provide rule-based systems that handle complex calculations with precision and speed, integrate seamlessly with custodial platforms, and enable advisors and their teams to focus on strategic decision-making rather than operational tasks.
In today’s landscape, a firm’s rebalancing software should offer – at a minimum – the following five key features.
5 Key Features of Advanced Rebalancing Software
1. Automation and Efficiency
Modern rebalancing tools allow advisors the capability to rebalance thousands of portfolios in minutes, significantly reducing the time and effort required to optimize allocations across hundreds or even thousands of client households.
A modern rebalancing platform can automatically generate trades based on predefined rules and thresholds, ensuring portfolios remain aligned with each client’s investment objectives and risk tolerance. Once a trade or rebalance has been created, the integration of direct trade execution capabilities with custodians, such as Schwab and Fidelity, further enhances the efficiency of rebalancing tools.
2. Tax Management and Tax Loss Harvesting
Effective tax management is a standout feature in leading rebalancing software. These tools contribute to significant tax savings for clients by optimizing their investment portfolios based on gain/loss data provided by custodial files.
Sophisticated rebalancers should offer tax-loss harvesting, capital gains avoidance, and asset location optimization, which help minimize tax liabilities and enhance after-tax returns for clients – without the need for an advisor to ever worry about manually keeping track of thresholds for tax optimization.
3. Customizable Models and Strategies
Advanced rebalancing platforms support a wide range of investment models, from simple asset allocation models to complex model-of-models structures, giving advisory firms complete ability to manage different asset classes according to their unique investment philosophies.
Advisors can also create and manage multiple models within a single portfolio, allowing for a tailored investment approach that meets diverse client needs.
4. Integration and Real-Time Data
Integration with custodial platforms and real-time data feeds via Open APIs is critical for effective rebalancing. Integration features also help manage accounts and households effectively, without the need to manually enter data or stress over different account structures across a tech stack.
Platforms like Co-Pilot are integrated directly within custodial ecosystems like Schwab Advisor Center, providing real-time positions, pricing, and trading capabilities to ensure that best execution is possible.
5. Compliance and Oversight
It almost goes without saying: Ensuring compliance is a major concern for RIAs.
Today’s rebalancing solutions can alleviate regulatory challenges through features like built-in, automated compliance checks, comprehensive audit trails, real-time alerts, and security controls to ensure the correct levels of access. These features help firms adhere to regulatory requirements and maintain robust oversight of trading activities.
Choosing the Right Rebalancing Software
Selecting the right rebalancing software for your needs depends on several factors, including the size of your firm, the complexity of your portfolios and investment strategies, and your specific rebalancing needs. Here are some considerations to keep in mind:
Scalability
Ensure the software can handle the volume of accounts and transactions typical for your firm. In the wealth management industry, scalable solutions are crucial for managing accounts and investment strategies effectively.
Look for platforms that offer flexible settings to accommodate unique client restrictions and preferences, allowing you to customize the software to fit your management style.
Integration
Consider how well the software integrates with your existing systems, including your CRM, trading platforms, and custodial platforms. Integrating cash management features is crucial for financial advisors to efficiently manage cash reserves, optimize liquidity, and incorporate cash needs into their overall investment strategies.
User Experience
A user-friendly interface can enhance productivity and reduce the learning curve for your team. Co-Pilot is known for its user-friendly interface, making it a powerful portfolio trading platform for demanding advisors who need a solution for their portfolio trading needs.
Support and Training
Evaluate each vendor’s support services and training resources to ensure your team can fully leverage the software’s capabilities. Training on features like tax loss harvesting opportunities is crucial, as it helps you to identify and capitalize on these opportunities, enhancing the overall efficiency of your tax management strategies — and most importantly, delivering alpha for your clients.
Conclusion
By automating routine tasks, optimizing tax strategies, and ensuring compliance, portfolio rebalancing software tools empower advisors to deliver superior service and achieve better outcomes for their clients. So remember this, investing in the right rebalancing software can transform your firm’s efficiency and effectiveness.
