Advisers discuss the operational complexities of trading

One thing that intrigued me at the Envestnet | Tamarac Advisor Summit in Chicago this month was the diversity of the audience. By that I mean I could never be certain of the job title of the person sitting next to me in a session — especially the general sessions. For the first time, the combined firm was having a single user conference. In years past, each held its own meeting and I attended last year's Tamarac gathering in Seattle. Around 500 participants converged there, but at this year's Advisor Summit there were more than 1,100 — a mix of advisers and operations professionals who use one of the firms' platforms. I will share the best example I experienced during the meeting, which occurred Thursday over breakfast with three different professionals. First, I met Tiffany Lessler, a client service manager with Golub Group, on my way down the escalator. Her registered investment advisory firm is based in San Mateo, Calif., and has 20 employees. In her role as a client service manager, she not only supports the firm's financial advisers and operations director but also acts as a liaison between the firm and its custodians. We were randomly joined by Hal Masover, a principal of Investment Insights Inc., a three-person hybrid advisory based in Fairfield, Iowa. Finally, Tracey Rogers sat down and rounded out our party. She is a trader with Plante Moran Financial Advisors, a 200-person RIA based out of Portage, Mich. Over the course of the conversation, Mr. Masover explained that years ago, he gave up the complexities of running a larger firm in favor of delivering dedicated retirement planning and management services to a smaller client base. A chartered retirement planning counselor, he works with his wife and one other staffer and said he relies on the Envestnet managed account platform — hence his attendance at the conference. “We like separately managed accounts more than mutual funds because they are more transparent,” Mr. Masover said, noting, however that SMAs are more expensive because of the fees. Even so, thanks to the platform's overall performance efficiencies and the quality of available asset managers, he said he did better than what he could achieve on his own. “There are plenty of good managers on [the Envestnet platform] that easily, handily, beat the S&P 500,” Mr. Masover said. With a flair for self-deprecating humor, he noted that his own performance actively managing investments in the past was not quite up to par with the S&P. “So why would I knock myself out to achieve suboptimal performance?” he said. Before long, the subject of trading came up. I was reminded of just how fragmented experiences and opinions can be — even on a topic as seemingly straightforward as trading — when viewed by individuals within the advisory business. Three different points of view emerged regarding the operational complexities of trading. “I'm planning to attend the 'Ultimate Daily Trading Workflow' and 'Portfolio Re-balancing Best Practice' sessions today,” Ms. Lessler said during our conversation. She is in the process of learning her firm's trading practices, which rely on Tamarac's re-balancer module. Mr. Masover immediately took on the role of devil's advocate and pointed out how simple and straightforward trading is, and, with characteristic good humor, expressed incredulity at the complexities alluded to by Ms. Lessler. “Are you serious?” she shot back. “Even though the Tamarac re-balancer is very helpful, we still have to deal with many accounts that have specific restrictions, which is very time-consuming.” Ms. Lessler's firm holds assets in custody at Schwab Advisor Services and relies on the venerable PortfolioCenter application from Schwab Performance Technologies to manage client portfolios — all of it integrated with Tamarac's re-balancing engine. Ms. Rogers backed up Ms. Lessler's assertion and added that, indeed, trading is inextricably tied to her larger firm's diverse operations. Plante Moran's RIA has $6.9 billion in assets under management. It provides holistic wealth management to individuals, families and business owners, and manages the tax consequences and optimization strategies in its trading for all of them. “A complex and technologically demanding challenge,” said Ms. Rogers. “And we still produce thousands of quarterly reports,” she said with a wink, adding that the firm was now offering a paperless option. “I stand corrected!” Mr. Masover responded. All this just goes to show that nothing in the advisory business is necessarily as simple as it might seem. Much else intrigued me at the conference, as well — but nothing more so than the announcement that a startup that I have followed since soon after its launch is now being integrated into the Envestnet platform. It was announced during the meeting that an integration with macroanalytics application HiddenLevers.com is in the works. Jay Hummel, chief operations officer for Lenox Wealth Management, was present, along with the meeting's keynote speaker, Sallie Krawcheck. The topic of Envestnet's overall business intelligence strategy initiative — of which HiddenLevers is one component — came up. “A few years ago, our clients would have thought it was OK for us to take three to four days to come up with a strategy for their portfolios relating to some big news event. That's no longer the case,” said Mr. Hummel, whose firm has $1 billion in assets under management and serves 220 families, many headed by sophisticated corporate executives. “We have to be proactive, and while our industry is really good at hiring data crunchers, it has not necessarily been as good at hiring front-office folks who can use the data most effectively and interact with clients,” he said, pointing to applications like HiddenLevers as one step in making this less of an issue.