New re-balancing solution cost-effective for smaller firms

A new entry in the re-balancing application area, TRX, may be what many small advisory firms are looking for as they seek to build efficient, scalable practices.

The product, Total Rebalance Expert, works in conjunction with Schwab Performance Technologies’ PortfolioCenter customer management software. It will cost between $5,000 and $10,000 a year.

The sophisticated re-balancing solutions now on the market — the portfolio re-balancing and trading module from Tamarac and the iRebal solution — can cost anywhere from $10,000 to $60,000 a year. These offerings, from Tamarac Inc. and Think Tech Inc. (owned by TD Ameritrade Inc.), respectively, are more suited for larger firms and those expanding quickly. For that audience, they are well worth the investment.

[Reporter’s note: The folks at Tamarac e-mailed me to correct my pricing spread in the paragraph above {it was originally $20,000 to $60,000}. Tamarac has a Growing Advisor Program that gets their pricing down to $10,000 per year for a multi-year contract and is for advisers with less than $250 million in assets under management.]

In addition to maintaining the proper asset allocation of clients’ portfolios, re-balancing minimizes capital gains and can be used for tax loss harvesting, location optimization, and reducing trading and transaction costs, among other things.

However, smaller advisory firms are often handcuffed by the high technology costs and therefore continue the labor-intensive task of manually re-balancing their clients’ accounts.

David Firth, director of operations and client services for Opes Advisors Inc., said that he had evaluated iRebal, Tamarac and RedBlack Software LLC’s Rebalance Express before selecting TRX six months ago. He was referred by TRX to be interviewed.

Opes manages $110 million in 475 accounts spread among 140 clients.

“We quickly realized we weren’t large enough and didn’t need a lot of the additional features found in the other products,” Mr. Firth said.

Prior to buying TRX, his firm relied on the comparatively simple re-balancing calculator and trading tool built into PortfolioCenter, but needed something that supported household-based asset allocation.

“Household [asset allocation] was the big thing that got us to looking for alternatives. Being able to predict when you were going to violate a wash sale rule, and whether your trades were going to create a short- or long-term capital gain,” had become increasingly important, Mr. Firth said.

The TRX solution also allows advisers to generate reports for their clients to illustrate realized tax savings, mostly from location optimization.

“We simply weren’t able to quantify that before, because it was too tough to collect the data,” Mr. Firth said.

TRX was built using Microsoft Access for the front-end user interface and Microsoft SQL Server as the database on the back end, according to one of the application’s creators, Sheryl Rowling. Both are offered by Microsoft Corp.

In addition to being chief executive of TRX, Ms. Rowling is a certified public accountant and a financial adviser. Several advisers have told me that her adviser background most likely had an influence on her software’s design, which is adviser-friendly.

To that end, Ms. Rowling acknowledged that the inspiration for the product grew out of the needs of her own advisory firm, Rowling Dold & Associates LLP.

“That’s really why most all of our customers are [registered investment adviser] shops. We built [the software] to address their specific needs, especially in terms of the high-level tax functionality we provide,” she said.

Moss Adams Wealth Advisors LLC acquired Rowling Dold in January.

“Affordability, ease of implementation and PortfolioCenter use are what make us a good fit for the 30 firms currently using our product,” said Ms. Rowling, adding that her intent in creating the software was to meet those needs specifically among RIAs, and not have her firm grow into a software behemoth.

Industry veteran Neal Ringquist, president of Advisor Software Inc., said that there is plenty of room for innovative software companies in the re-balancing area.

“The good thing is that the market is catching on to re-balancing as an efficiency tool,” he said. “If you look at usage on platforms from custodians where it is freely available, it is through the roof.”

Advisor Software’s re-balancing application is used by advisers on the tech platforms of several custodians and independent broker-dealers.

Ryan Callan, chief operating officer of Callan Capital, a wealth management firm that manages $250 million, purchased the TRX solution for greater efficiency in household-based asset allocation.

He said that his firm is spending about $7,500 annually for the TRX solution.

“At this point, it is indispensable,” Mr. Callan said.

“I’m able to come in and take a quick look at our households and see what needs to be done,” he said. “It takes me about five minutes.”

E-mail Davis D. Janowski at [email protected].

Related information:
Video presentation on reblancing and demo of TRX
iRebal vs Tamarac discussion on LinkedIn.com (you’ll need to be a registered user of LinkedIn and member of the RIA Marketplace group on the site to view this).

Links to companies and products discussed in the story:
iRebal from ThinkTech Inc.
Rebalance Express from RedBlack Software LLC
Tamarac Inc.
TRX/Total Rebalance Expert