Technology Update

Russell's new tool allows quick analysis of portfolios

Jul 8, 2012 @ 12:01 am

By Davis Janowski

Russell Investments has launched a nifty — and free — portfolio risk assessment tool.

The Russell Factor Management Tool, which is akin to a complex scratch pad on which financial advisers can do quick risk analyses of client portfolios, ferrets out risk in the equity portion of holdings.

To build the tool, Russell worked with Morningstar Inc. and Axioma Inc., a well-known risk analytics firm, to create what they consider an unbiased way of examining and analyzing risk in a portfolio.

In a nutshell, when advisers upload a client's portfolio (CSV files accepted) to the tool, it will first strip out all investments that aren't equities or cash.

The tool then will give a summary of the overall active risk in the portfolio and how the portfolio is expected to behave in the next three to six months, compared with a chosen benchmark (there are many to choose from on a drop-down menu).


Once the active risk is established, the tool looks at three main risk factors — momentum, volatility and beta — to determine how much exposure the portfolio has to these types of risk.

The tool then tells the adviser which investments carry the most risk and works with the adviser to add tilts, if desired, in the form (unsurprisingly) of Russell exchange-traded funds to help control this risk.

One of the benefits of the tool, though, is that the risk measurement aspect of it is Russell-agnostic and will work on any portfolio of holdings, which is partly where Morningstar came in by providing holdings data.

“We launched these Factor ETFs last year and inevitably got the question from advisers, "I know I have these exposures, but I don't know how to quantify them,'” said Cory Haynes, director of e-business for Russell ETFs at Russell Investments, who led me through a demo of the product. “We wanted to bring the institutional process down to the retail level, to democratize it.”

The folks at Russell suggest that an adviser who uses the tool can discover where a client stands in six steps, compared with about 20 steps with a product such as RiskMetrics from MSCI Inc., which is a package popular with pension and hedge fund advisers.

Russell claims that its product is unique because no other web-based tool predicts performance.

I have looked at two other risk analysis tools in the past, and MacroRisk Analytics. Both are meant for viewing a portfolio through the prism of larger, more widespread economic factors.

Adviser Matthew Neyland of SK Wealth Management LLC, a registered investment adviser with $130 million in assets, spoke with me about the product, which he has used for some time in beta. He was provided to me as a source by Russell.

“Risk measurement and management has become priority No. 1 for RIAs like me, and [the tool] gives a different perspective on risk measurement than other tools out there. It is a nice addition to the toolbox — and the price is right, too,” Mr. Neyland said.

Mr. Neyland, who said he isn't a big user of Russell's funds, thinks that the tool has a big opportunity to become popular.

Although he is familiar with the two macroeconomic-risk tools mentioned above, neither they nor anything else available to the budget-conscious RIA are as quick and easy to use, he said.

For more information or to try the tool visit the Russell Factor Management Tool page online.


Big changes are afoot in SEI Investments Co.'s wealth management business.

The firm, long known for serving big banks, investment advisers and managers, as well as institutional investors and affluent families, has completed a total rewrite of its technology platform.

SEI's value to the adviser community always has been that it is a totally outsourced offering that includes investment products and funds, as well as technology. But the latter has come to be thought of as antiquated.

No longer. SEI's systems have been thoroughly revamped, beginning with its legacy mainframe accounting system, which has been replaced with a cloud-based Oracle database and a new front-end user interface built with Enterprise Java.

“We rewrote the whole platform from scratch using more-advanced technologies and databases available to us. This is brand-new for us, and the new functionality will support a new business model,” said Steve Onofrio, managing director of the SEI Advisor Network.

Perhaps most important for many advisers is that SEI's business model has been expanded to support full custody of many other types of assets — if an adviser wants to add a low-cost set of ETFs to clients' portfolios, for example.

“We have always custodied our own funds, including our own [separately managed account] funds, but we have a whole new custody environment to accompany that, to include anything we can value: private-equity hedge funds, privately traded [real estate investment trusts], any private or nonpublic asset. And it does not have to be [an Investment Company Act of 1940] investment — anything we can independently price and value,” Mr. Onofrio said.

The firm is expanding beyond the turnkey asset management program segment in which it always has been pigeonholed, and is shifting into something more flexible, he said.


“They now have a bigger, broader offering than many of the big managed-account players. While it took them a while to get this built, I think the timing is right,” said James Penman, a senior consultant with Smart Consulting Firm LLC, who has spent decades in the managed-account industry, including time spent building systems at Bank of America Corp. and Wachovia Securities.

These efforts should position the platform to be more competitive with the likes of Envestnet | Tamarac.

“A lot of the banks — private banks, especially — and trust companies really need this, and I think it is going to be transformative,” Mr. Penman said.

Although Envestnet Inc. may have led the charge with its acquisitions and initial public offering, which has let it put pressure on other TAMPs, SEI's move is evidence that there definitely is movement in the market, said Alois Pirker, research director at consulting firm Aite Group LLC.

“Those firms that have been in the market for 10 or 15 years now, it is really time to rewrite their systems. That investment they made initially has been stretched to the limit and [there] is also a lot more integration expected in the back office these days,” he said. Twitter: @ddjanowski


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