Financial advisors who use a technology that enables them to automate portfolio rebalancing for their clients can shave the process down from 350 hours annually to 100 hours, according to new research released by CEB TowerGroup.
That number is based on CEB TowerGroup’s calculation on how long it would take to manually rebalance for an average number of clients, and the estimate for how much time can be saved may be conservative, according to Darrin Courtney, research director of wealth management at CEB TowerGroup.
“You could do it in an hour or less a week if you were going to put attention on it,” Courtney said. “Even being conservative, we see at least a 70% time savings by using some form of automated system.”
The new report from CEB TowerGroup called “The Importance of Automating Rebalancing” is the result of independent research that was commissioned by Jersey City, N.J.-based financial software firm Scivantage. The report does not endorse a vendor or product.
The report’s focus on automated rebalancing comes as market turbulence in recent years has led to more awareness that portfolios can drift, or become too aggressive or conservative, if not rebalanced regularly.
At the same time, more advisors are serving in a portfolio manager role and overseeing more assets, up to $403 billion as of the first quarter of 2011 versus $360 billion in 2010 and $291 billion in 2009. Clients, in turn, are also asking their advisors for regular rebalancing as they become more aware of the process through their employer-sponsored retirement plans, according to Courtney.
“The markets are still volatile, and I think people are very nervous, which is leading to this kind of collaborative relationship,” Courtney said. “They want a much more focused portfolio that is based on their goals and their needs.”
Adoption of technologies to enable rebalancing automation is now trickling down from the first adopters, including wirehouse and regional firms, to independent broker dealers. Rebalancing technologies now include cloud-based services that can integrate into trading systems and clearing and custody platforms.
The most important element of any technology offering is its integration, according to Courtney. The rebalancing system should integrate with the front end advisor desktop, as well as the middle and back office so that the trades required to rebalance are directly processed. It should also be connected to the clearing and custody platform so that advisors do not have to reconcile and check that everything went as planned.
“It should happen automatically, and that’s where that integration is really going to save time,” Courtney said.
Other important characteristics of a proper rebalancing technology, according to CEB TowerGroup’s report, include: asset allocation, portfolio analysis, straight-through processing and compliance and reporting.
Scivantage commissioned the report as it prepares to launch its own software as a service product that aims to help an advisor quickly and easily take care of rebalancing, said Joe Stensland, executive vice president of product and delivery management Scivantage.
Scivantage’s new product is designed to allow an advisor to see a portfolio’s drift and rebalance it in real time because it is integrated with all back office client data, Stensland said. With the new product, the firm plans to target clients including retail broker-dealer firms, registered investment advisory service organizations and independent or full service advisory firms interested in deploying the tool across their advisors.
“We are introducing a product that enables an advisor to perform this capability very quickly and easily,” Stensland said. “Having some research and backup behind that helps in the process to raise the education and awareness around it.”