Schwab entices advisers with free software

Schwab Institutional will provide free portfolio re-balancing software to financial advisers who use its custody services. The San Francisco-based custodian was expected to announce at the Financial Planning Association’s annual conference in Seattle this week that it is making available the technology that automatically keeps stocks and bonds in the proportion intended by an adviser’s plan. This technology is made by Advisor Software Inc. of Lafayette, Calif., which was chosen by Schwab Institutional from 12 firms that expressed interest in the contract. TD Ameritrade Institutional of Jersey City, N.J., already makes the same software available to its advisers. The move to ASI’s Portfolio Rebalancing Solution is intended to curtail one of the biggest time drains that financial advisers face, according to Marjorie Qualey, vice president of product development for Schwab Institutional. “Ninety percent of the trades come in electronically, but 90% of the work done prior to making the trade is done manually,” she said. “Advisers told us it was one of their most time-consuming tasks.” Time waste This time drain has become more acute of late, said Neal Ringquist, president and chief operating officer of Advisor Software. “There are more and more investor policy statements in the business.” Mr. Ringquist said. “That’s clearly a trend, particularly among the [registered investment advisers].” But advisers need to scrutinize the free re-balancing software offered by Schwab, said Mark Balasa, a principal of Balasa Dinverno & Foltz LLC of Itasca, Ill., which uses the re-balancing software of Morristown, N.J.-based iRebal LLC. Balasa Dinverno manages $1.5 billion. “The concern is that free is a troubling term,” Mr. Balasa said. “If the software is simplistic — not taking into account all variables — the tool is marginally useful. For example, the re-balancing software of [one off-the-shelf product] is next to useless, because it doesn’t account for loss carryforward, transaction fees and other factors.” Mr. Balasa helped design the iRebal re-balancing software. But less-sophisticated software has its place for many of the 5,200 advisers served by Schwab, Ms. Qualey said. “Some advisers don’t want the very sophisticated solution,” she said. Ms. Qualey praised the more-sophisticated software of iRebal and Tamarac Inc. of Seattle as a good choice for some advisers willing to pay for it. TD Ameritrade acquired iRebal this year. Fidelity Investments offers some basic portfolio re-balancing software for advisers, but it expects to announce a substantial upgrade in the next two months, said Mike Shamrell, spokesman for the Boston-based company. “[Advisor Software’s re-balancing software] is not an uber tax- optimized solution,” Mr. Ringquist conceded. “[Mr. Balasa] is right, for sure, that if you want tax-optimized re-balancing, this isn’t that.” “The feedback we’ve gotten from advisers has been very positive,” Mr. Ringquist added. Indeed, it’s hard to overstate how much portfolio re-balancing software can improve a firm’s efficiency, said Mike Steiner, a wealth manager for RegentAtlantic Capital LLC, of Chatham, N.J., which manages $1.8 billion. “It’s made a world of difference,” he said. “We have 800 customers, and before, it would take us 10 minutes to 40 minutes to re-balance a single portfolio. “Now we do our whole firm’s portfolios before lunch, with one person rather than half a dozen,” Mr. Steiner said. RegentAtlantic Capital also was one of the three firms involved in the design of iRebal. But an equally important feature of the ASI software is that its efficiency encourages advisers to re- balance portfolios more often, Ms. Qualey said. “It was taking multiple hours, so some advisers were not re-balancing as often as they should be,” she said. Daily re-balancing Indeed, many firms re-balance only on a quarterly or semiannual basis, but daily re-balancing is far more opportunistic, Mr. Steiner said. “For instance, the last few weeks [of turmoil in the financial markets] might have been a great time to harvest tax losses or to get real estate [-related shares],” he said. With these advantages, Schwab expects to get many advisers to use its new re-balancing offering. Currently, only about 5% use re-balancing software, Ms. Qualey said. “We are expecting a large number of advisers based on the feedback,” she noted. Advisers who use re-balancing software can expect their quality to go up as well as their efficiency, Mr. Steiner said. “At some point, you get tired” when you’re spending a day re- balancing portfolios manually, he said. “The computer never gets tired. I wouldn’t want to be that portfolio being re-balanced at 5 p.m.”