Imagine hitting a single keystroke and being able to re-balance all your client accounts.
That remains a pipe dream for many, but the concept is coming closer to reality for at least one segment of the advisory community.
Thanks to an integration formally announced last Monday, registered investment advisers now have access to straight-through processing of re-balancing trade orders between iRebal and TD Ameritrade Institutional's Veo account management platform.
This is a good time to clarify a couple of points that I initially found confusing.
First, iRebal, a re-balancing tool, is a product of ThinkTech Inc., a wholly owned subsidiary of TD Ameritrade Holding Corp.
An obvious question I had while talking to the folks at iRebal and TD Ameritrade Institutional was why no direct integration exists. They are owned by the same company, after all.
The answer is that doing so would depend on opening up TD's application programming interface, a process which began as an initiative just two years ago.
Since then, more than 60 technology providers have gotten to various stages of open-API development.
What this latest integration means is that RIAs using both iRebal and Veo will be the envy of other firms that are still manually processing trades as part of their re-balancing process.
I am betting that the integration will spur a flurry of communication, at least among the many RIAs that have multiple custodial relationships and who use iRebal.
Those firms will contact Fidelity Institutional Wealth Management and Schwab Advisor Services, pressing to have similar iRebal STP integrations built into their systems.
Another point to clarify is that iRebal itself is custodian-agnostic. Thus it does connect with the account management systems of the other custodians but lacks the streamlined functionality achieved with an integration directly into Veo.
I recently received a demonstration of the iRebal-Veo integration. Since then, I have interviewed several financial advisers, including two with firms that piloted the integration and are now using it in production (and who were provided to me by TD), as well as a few who are looking forward to getting access soon.
Joseph Benoit is an analyst and primary securities trader for RIA firm Grimes & Co. Inc. The firm, which has $1.1 billion in assets under management, has been using iRebal for a year and a half, and has piloted the STP integration over the past two months.
“We custody assets at all three [major custodians], but about half of those assets are at TD,” Mr. Benoit said.
He described how the new process alleviates the tedious manual process of creating trades in iRebal, exporting them to a .CSV file, leaving iRebal, opening up a browser session, connecting with the custodial accounting system, getting a popup window for locating the correct file to import the trades, and finally executing them.
The new way is an almost seamless transition, which connects iRebal to Veo from within the app. Any issues or pre-trade warnings are returned, and once those are dealt with, you can hit a button on the interface to execute the trades.
“Sure, it saves time, but [by] not having to go through the additional step of going and getting it into an Excel spreadsheet and then exporting it [into Veo], it is less error-prone. With Schwab and Fidelity, you still have to leave iRebal to actually execute the trades,” Mr. Benoit said.
Brian Resch of the RIA firm JNBA Financial Advisors Inc., which manages $425 million in assets, is an investment and portfolio specialist whose responsibilities include the use of iRebal.
He said that he re-balances between 70 and 100 of the firm's 750 portfolios at one time.
“Where these improvements have really saved the time is the management and upload process for these accounts,” Mr. Resch said.
Indeed, I wrote in June about an unrelated collaborative study between tech provider Scivantage and research firm CEB TowerGroup.
The study found that automated re-balancing could save an adviser more than 250 hours a year over what it would take to manually re-balance the same number of client accounts. In other words, manual re-balancing on average takes 350 hours of an adviser's time, versus 100 hours when done using an automated system.
Although the new integration is free for iRebal-Veo users, iRebal itself isn't.
RIA firms managing $300,000 to $1 billion in client assets will spend between $20,000 and $50,000 a year, plus a $10,000 initial installation fee, for the product.
Lest anyone think that iRebal is the only game in town, the other behemoth in the automated- re-balancing arena is the module available from Envestnet | Tamarac (Tamarac was bought by Envestnet Inc. a few months ago).
Its offering has built-in optional straight-through processing that makes use of another company's technology, Sungard's FIX connection.
Envestnet | Tamarac is upgrading its own FIX connection so that it integrates directly with multiple custodians and allows for mutual fund trading.
The firm is working with TD to release its own initial direct integration with Veo, slated for delivery this month, and a deeper STP integration “in the near future,” Envestnet | Tamarac spokesman Matt Stroh said.
I will close with Yuli Yeliseyev, a portfolio manager at McLean Asset Management Corp., which has been using iRebal for four years. With $500 million in assets, the firm manages more than 600 client portfolios, most managed across several accounts and most reviewed at least once a month using iRebal.
“[The upgrade] is not earth- shattering but is very welcome,” Mr. Yeliseyev said. “It removes several manual steps, will save us time and helps prevent errors.”
Visit the online version of this story for links to several lower-cost re-balancing products for smaller firms or those with less complex needs.
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