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Top Re-balancing Software Vendors Duke It Out, By Davis D.l Janowski

Financial Planning
Rebalancing Act, By Joel Bruckenstein

Financial Adviser Magazine
Triumphant Technology, by David Drucker

Financial Adviser Magazine
Triumphant Technology, by David Drucker, 2/08

For some advisors, nothing brings success like finding the right technology.
Many factors account for success in the financial advice business, say studies by Moss Adams and others. Superior marketing strategies, personnel hiring and management and client services all contribute to success. But for some advisors one factor less often cited has, above all else, accounted for astounding gains: the discovery and wise use of technology. Becoming more technologically sophisticated has moved these advisors more quickly along the road to success and rising profits than any other single factor.

What advances have had the greatest impact on their success, and could they work the same magic for any advisor who adopts them? We asked over a dozen tech-savvy advisors to share their secrets, and the duplication we found in their lists suggests the answer to the latter question is a resounding “yes.” What do they know that you don’t?

The Impact Of Technology
Two kinds of technology tend to impact advisors. The first is the “killer app”—that one application that solves a problem so big that it, alone, accounts for measurable and sizable gains in the advisor’s practice. Killer apps can be costly and labor-intensive to implement, but once advisors understand their potential they willingly take on the task.

The second technological impact comes from the “indispensable utility.” This is usually inexpensive and easy to use and, while of lesser impact than the killer app, its usefulness so far outweighs its cost that it is, well, indispensable. Our sources repeatedly referenced three killer apps or, more accurately, three technologies, which have had the greatest impact on their success: the paperless office, iRebal and build-it-yourself applications.

Killer App No. 1: The Paperless Office
Thom Hall, a partner with Financial Strategies Institute in Midvale, Utah, began setting up his paperless office in 2001. He acquired a high-speed scanner, PaperPort http://www.nuance .com/paperport/ scanning software, an eFax line http://www.efax.com and a Copytalk http://www.copytalk.com account for on-the-fly phone dictation. (Copytalk automatically transcribes your dictation into text delivered to your e-mail in-box; a free utility called Jott http://www.jott.com does almost the same thing.) And to protect the files created from all his paper, Hall installed a RAID hard drive system, a carousel tape backup drive and external hard drive backups he keeps offsite, rotating weekly. (Just as the concerned business owner might protect his paper in fireproof file cabinets, digital documents must be protected by the appropriate backup technologies.) “These changes have had a dramatic effect on our practice,” says Hall. “We access files more quickly, we freed up many file cabinets and the space they require and we protected ourselves from one potentially disastrous hard drive failure by having redundancy in our backups.”

The reasons why paperless offices are giving advisors such great returns on investment are both top line and bottom line. On the top line, a paperless office enables faster responses to client needs because critical information that feeds the advisory process is so much easier to find in digital files accessible through search engines than in paper form. Better client service equals more business and increased revenues. At the same time, efficiencies realized through faster data searches and the ability to eschew common paper-related tasks like filing and copying cut costs—often significantly.

Several advisors cite Worldox http://www.worldox.com, a component in some advisors’ paperless office implementations, as a killer app unto itself. What Worldox does is provide a consistent means of filing and later retrieving all documents captured through paper scans or other sources. Says Sarah Buenger, CFP, an advisor with Briaud Financial Planning in Bryan, Texas, “Worldox has allowed us to accomplish more work in less time, ultimately providing freedom to manage more clients with the same or less resources.” Of the transition to a paperless office, she adds, “Initially, the thought of instituting such a huge change was intimidating, but we stepped out of our comfort zone and grew tremendously as a result.” Mike Palmer, a principal with The Trust Company of the South, with offices in Burlington, Raleigh and Rocky Mount, in North Carolina, installed Worldox just last year to solve the problems his firm was having sharing information among three locations. “Before Worldox, we used a VPN and simple Windows drives,” says Palmer. “If I was in our Raleigh office and wanted to find something in our Burlington office, it was nearly impossible. What Worldox did was force a filing conformity on us that was lacking before.” Rest assured that none of these advisors wishes he was still using paper files to conduct business.

Killer App No. 2: iRebal
Traditionally the rebalancing process has been one of the greatest inefficiencies in the practices of advisors who not only do financial planning but also manage their clients’ investments. Widely used portfolio management software products such as Advent and Centerpiece brought tremendous gains in the 1980s to advisors who reported portfolio positions to clients with manually constructed spreadsheets. Concomitantly, custodians built technology platforms simplifying the process of uploading trades. Yet once these efficiencies were realized and eventually taken for granted, advisors became keenly aware of one gap in the management process that seemed particularly resistant to modernization: rebalancing. The investment management process is a circular one. The advisor reviews the client’s investment positions, formulates trades to bring the investments into line with the asset allocation strategy and uploads the trades to a custodian. After some predetermined period, the client’s investments are newly reviewed and the process begins all over again. The first and third parts of the process might have become automated, but the rebalancing part was, for many advisors, still stuck back in the spreadsheet era. Not only was rebalancing done independently of trading and reporting, but many advisors failed to grasp the intricacies of tax-efficient rebalancing anyway. In response to this need, Gobind Daryanani, CFP, Ph.D., developed iRebal http://www.irebal.com in 2005. Upon learning of iRebal and seeing it demonstrated at industry conferences, advisors grew increasingly excited. Upon learning of its $50,000 purchase price, they lost some of that excitement. Yet many have implemented it anyway, because the efficiency it brings justifies its price. (Reputedly, iRebal can speed up the rebalancing process from 18 minutes per family of four accounts to 500 clients and their accounts in just 30 minutes.) Confirms Michael Kitces, director of financial planning for Pinnacle Advisory Group in Columbia, Md., “We’re tactical asset allocators, and thus shift our portfolio models to move amongst asset classes, sectors and industries. iRebal allows us to execute our entire trading strategy in a way that’s both radically more efficient and higher-value for our clients, for whom we’re able to get better execution.” Adds Pinnacle’s Senior Portfolio Analyst Rick Vollaro: “iRebal lets us manage our entire trading operation, involving 550 clients [and all their accounts], with just one employee. Before iRebal, we had three full-time traders and still had instances when a full block trade for a portfolio change could take a week or more, depending on how complicated it was. Today, it takes a few hours for the program to run, and then a few hours for the trader to execute the trades.” Not only that, but Pinnacle’s “extra” traders were freed up to advance their careers by becoming full-time analysts for the firm. Other advisors are finding ancillary benefits, as well. Mark Willoughby, a principal with Greenbaum and Orecchio Inc. in Old Tappan, N.J. says, “We purchased iRebal before the point at which it made economic sense for the firm, but we felt confident that, with the growth our firm was experiencing, the operational benefits that would accrue from installing a centralized, rules-based rebalancing system would outweigh its cost of purchase and installation. Not only did we realize the operational benefits and efficiencies we projected, using iRebal encouraged us to reduce the list of products we use from 180 down to 30, minimizing our due diligence requirements. And it puts our firm in a strong position to be able to handle any market dislocation, such as the aftermath of September 11th. We are confident we can rebalance all client portfolios and upload the resulting trades in less than a day; if we had to rebalance manually, it would take three or four days to get through our entire client base.” Just be aware there’s a certain scale necessary to make iRebal worthwhile, says Kitces. “Ideally, a firm should be ready to hire itsmsecond staff trader so it can realize the value of having one trader plus the software in lieu of two traders.” And, given the high cost of labor, that’s a trade-off most advisors will readily accept.

Killer App No. 3: Build-It-Yourself Apps
Sometimes your killer app is out there, ready to be purchased and adapted to your practice, and other times it sits on your own personal wish list waiting indefinitely for someone to create it. Michael Joyce, owner of JoycePayne Partners in Richmond, Va., and Bethlehem, Pa., had for years shared with several colleagues a common vision for a customized CRM system that would bring long-sought efficiencies to all their practices. Mary Malgoire of The Family Firm in Bethesda, Md., and Cheryl Holland of Abacus Planning Group Inc. in Columbia, S.C., joined with Joyce and an independent programmer/consultant to build AdviceFlow, the name they gave to the CRM creation that they’ve all been using since 2004. “Although management guru Michael Porter claims operational efficiency is not a competitive advantage, our firms’ development and implementation of AdviceFlow has been the single biggest factor in our productivity gains and greater profitability,” says Joyce. “Not only is the CRM component top-notch, but the workflow capabilities have streamlined our processes and the management reporting has enhanced accountability and my ability to measure our productivity.”

What did it cost Joyce, Malgoire and Holland to create AdviceFlow? They didn’t want to comment on what they’ve invested to develop the system, but they do feel the investment was worth it. Would they build the system again? Absolutely. Joel Javer, a principal in Sharkey, Howes & Javer Inc. of Denver, encountered a similar need when, like Kitces, he became keenly aware of the low productivity associated with his firm’s investment rebalancing process. Instead of springing for iRebal’s demanding price tag, though, he developed his own tool, eAllocator (www.eallocator.net), which, unlike AdviceFlow, is available for purchase by other advisors. “eAllocator has allowed us to increase the timeliness of portfolio reviews, it’s greatly reduced the time it takes to rebalance our model portfolios and it’s eliminated trade errors. It allows us to change model portfolios and rebalance 1,000 client portfolios in about three hours, generating trades that go directly to their respective custodians. If any of the trades produce a short-term capital gain, mutual fund redemption fee or custodian short-term fee, eAllocator shows these trades on a separate screen to be viewed and reconsidered,” says Javer.
Has eAllocator made Sharkey, Howes & Javer more efficient? If technology replacing human labor equals efficiency, then “yes” is the answer. “This tool has eliminated the need for one and one-half employees,” says Javer.

The Indispensable Utility
So we’ve seen what happens when a firm commits lots of dollars, lots of manpower or both to the revamping of its weakest technological link. What do we do about all of those niggling little problems that could be solved if only there were some simple, cheap technology available to do the job? Maybe there is. Our tech-savvy advisors listed an array of utilities they use to remedy some universal dilemmas, such as creating a backup disaster plan, establishing remote connections for those out-of-office adventures and controlling the costs of technology as their service teams grow. Certain utilities, just like our killer apps, showed up on advisors’ lists more than once.

Backups And Your Disaster Plan
Using the word to define itself, Webster’s Dictionary says a disaster is an “act that has disastrous consequences.” That definition covers a lot of ground, especially when talking about computer backups. What if ... your server’s hard drive just up and quits, the backup file you need to restore is just as corrupted as the file you want to replace, or you lose two hours of work you started earlier this morning to a power surge? These are all disasters, albeit some are worse than others. But the point is you’re more likely to survive them if you employ more than one kind of backup. In addition to the standard in-house backups to tape drive, CD, DVD or external hard drive, advisors are finding a “backup to their backups” on the Internet. Once considered too expensive for many small businesses, Internet backups have come down in price. Charley Kanieski, a CPA in Port Townsend, Wash., uses iBackup http://www.ibackup.com, a service that can back up his data over the Internet for as little as $99.50 per year for five gigabytes (GB) of storage memory or as much as $2,999.50 per year for 300 GB. Ken Robinson of Practical Financial Planning in Cleveland started with Iron Mountain at about $300 per year but has since moved to Carbonite http://www.carbonite.com. “Carbonite has a far simpler interface and costs only about $50 per year,” says Robinson. Michael Donahoe of On Course Financial Group LLC in Portland, Maine, uses a similarly priced Internet solution called Mozy http://www.mozy.com. Try to understand the many ways backups can fail you, and then you’ll be equipped to look for the multiple backup solutions needed for comprehensive protection.

Remote Connectivity
It may not be the wisest thing for preserving one’s mental health, but that’s beside the point: Advisors are clamoring for remote connectivity solutions. Yes, remote computing solutions allow advisors to work 16 hours a day instead of just eight or ten, but on the other hand, they may also spend more time with their families knowing that clients or employees can find them when necessary. Our sources’ most often cited utility for remote connectivity was GoToMyPC http://www.gotomypc.com. Says Robinson,
“GoToMyPC is the one technology that has made the greatest change in my day-to-day operations. My out-of-state virtual assistant creates investment work sheets and client tax returns for me, remotely dropping them onto my computer when completed.” Adds Donahoe, “With GoToMyPC, I no longer lug my laptop through airports since I can use a hotel business center or a Kinko’s if I need to check in.” GoToMyPC is an Internet-based software that allows one computer to take over the operation of a remote computer or swap files with a remote computer, and costs a single user $19.95 a month. But GoToMyPC is just one take on the remote computing experience; there are many complementary options, such as virtual receptionist technology. Scott Floersheim of Meridian Wealth Advisors LLC in Albuquerque, N.M., uses OneBox http://www.onebox.com, a unified messaging solution. “I can receive faxes and voice mail through Microsoft Outlook,” says Floersheim, “and OneBox has the usual auto-attendant, ‘find-me’ and ‘follow-me’ features so that my availability to clients is
unrelated to my physical location.” InsynQ http://www.insynq.com represents yet a third version of remote connectivity. A favorite utility of Milo Benningfield, owner of Benningfield Financial Advisors in San Francisco, InsynQ provides him with a “virtual desktop” hosted on a remote server that effectively gives him a “wide area network without all the cost and headache of an on-site server.” And it’s a disasterrecovery
plan too, says Benningfield. “It makes centralized document storage a snap. And most important, it makes it easy to continue to grow and add employees, located anywhere, without having to worry about how I’ll accommodate them on my network. All I need to do when adding a new employee is purchase a new user logon.”

Controlling Hardware Costs
We’ve said a lot about software and Web-based applications, but nothing about hardware. Yet as firms grow and new employees must be given tools and equipment to do their jobs, hardware costs can rapidly get out of hand. Paul Baumbach’s solution to this is the work group printer/copier/scanner. “Last year we upgraded to a Konica Minolta BizHub C250 http://www.biz.konicaminolta.com /km/colour/c250/, which allowed us to reduce the number of desktop scanners and printers we use. Each employee can scan what he needs with the result showing up in his in-box on a shared drive.” Baumbach says this hardware solution allows his firm, Mallard Advisors LLC of Newark, Del., to avoid the high costs of individual scanners and printer ink, plus the work group scanner doesn’t slow down employees’ individual computers as do individual scanners.

The sum total of all these killer apps and indispensable utilities is a better business and a better life, which should be enough to make even the most computer-illiterate advisor sit up and take notice. The wise application of these technologies—as our techsavvy
advisors have shown us—can put information at your fingertips, slash the time it takes to complete unavoidable back-office tasks and give you complete mobile freedom, none of which were available ten years ago. Are you on board?

An independent financial advisor since 1981, David J. Drucker, M.B.A., CFP, has been an industry influential for many years. Learn
about his books, public appearances, Practice Lifecycle, Virtual Office News and the annual “Technology Tools for Today” Conference at www.DavidDrucker.com.

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Financial Planning
Rebalancing Act, By Joel Bruckenstein, 5/1/06

A new program that automatically performs sophisticated rebalancing--and captures extra alpha--is stimulating the market for similar programs. Here's what's available.

May 1, 2006- To make profitable software for the advisory community, you need a good story, research to back it up and someone to spread the word. Case in point: Harry Markowitz's research on the efficient frontier had been available since the 1950s, but it wasn't until the Brinson, Hood, Beebower study of 1986 that modern portfolio theory really became gospel in the planning community. Once it did, there was lots of money to be made selling optimization software. Today's parallel may be rebalancing software. Like MPT, rebalancing has been around for years, but it is suddenly creating a new level of interest, driven partly by a low return environment. The man spreading the word about the benefits of rebalancing is Gobind Daryanani, a CFP, PhD and president of iRebal--also the name of his new software program. Whether its ilk will be the killer app that optimizers were in the 1990s is yet to be seen, but planners should know what rebalancing programs now on the market can do.

There has always been a case for rebalancing to reduce risk. You determine, say, that a $1 million portfolio of 50% stocks and 50% Treasury bills will meet your client's goals and risk parameters. If, after a year, the market is up 25%, the portfolio will have $625,000 in equities and $525,000 in cash, so the planner would sell $50,000 in stock and buy $50,000 in T-bills to restore the 50/50 ratio. The goal is not to increase returns--although that could happen in a down market--but to limit exposure to the riskier asset class (equities).

There is also a more recent, market-driven argument for rebalancing: the search for alpha. In the late 1990s, all you had to do was "buy the market" to make lots of money. From 1996 to 1999, the Vanguard 500 Index returned 22.9%, 33.2%, 28.6% and 21.1%, respectively. In this climate, there was little incentive to seek extra alpha from intelligent rebalancing. Plus, clients hated rebalancing because it meant selling their winners to buy asset classes that performed less spectacularly. However, the turn of the century has brought on a much more tepid investing climate that could continue for years. The 50 basis points that didn't matter when portfolios were up over 20% a year can make a significant difference now that portfolios might deliver less than 5%. The question: Can rebalancing a portfolio add alpha? Daryanani's research suggests it can.

Among his findings is that rebalancing can add 30 basis points a year based on "location optimization," that is, managing several accounts at the household level and carefully
considering where each asset is held within a family unit's accounts. He has also shown that rebalancing opportunistically (when an asset class moves out of a band, as opposed to on a calendar basis) can add 55 basis points more. Plus, Daryanani believes that tax-efficient rebalancing at the tax-lot level can add 10 basis points, and tax-loss harvesting can add another 10 to 20 basis points, although he has not yet confirmed these numbers through research. In total, rebalancing the Daryanani way could add 85 to 115 basis points of excess risk-free return. While this extra return is risk free, it's not totally free; the cost is the considerable time and labor required to rebalance manually.
Daryanani knows of what he speaks. He actually performed detailed manual rebalancing at RegentAtlantic Capital in Chatham, N.J., a firm that manages more than $1 billion in assets. He estimates that it takes a skilled individual, on average, 18 minutes per household, or three households per hour, to rebalance manually the typical RegentAtlantic household. That's some 20 to 25 rebalances per day. If RegentAtlantic had only 100 household relationships, and the firm wanted to check opportunistically for rebalancing opportunities across all households each day, it would need at least four full-time staff people to do so.

With the backing of RegentAtlantic and a few other firms, Daryanani set about developing a software program that could help an adviser complete this 18-minute process in a minute or two. The result is iRebal.

iRebal
iRebal automates the rebalancing process, including generating trade orders--and proposed trades can be reviewed manually before they are uploaded to a custodial system for execution. The program offers rebalancing at the household level across multiple accounts, both taxable and tax-free. It allows for multiple targets at the asset class, subasset class and individual fund level. The program can track individual tax lots and individual tax rates, as well as tax-loss carry-forwards. It can also manage intelligent tax location. iRebal is an "expert" or rules-based system. It starts from the premise that advisers follow certain rules to rebalance a portfolio. Say you want to rebalance opportunistically, and your target allocation for a household is 10% of assets in U.S. small-cap stocks. You might not rebalance if the allocation drops to 9.7%, but you would if it dropped to 8%. As long as you can explain it and create a rule for it, the software can be programmed to do it. Another example: If you need to buy small-cap stocks, your default choice might be ABC Fund, which has a $50,000 minimum ticket amount. You can create a rule that redirects the purchase to HIJ Fund instead whenever the indicated small-cap price is less than $50,000. Since both of these funds are highly tax efficient, you might want to hold them in a taxable account. However, if cash has a higher utility for you in the taxable accounts than in the taxdeferred accounts, there is a potential conflict: My preference for tax efficiency indicates the fund should be purchased in the taxable account while my cash holding preferences indicate the funds for the purchase should come from the tax-deferred account. I can solve the conflict by assigning a level of importance to each rule (i.e., making tax efficiency more important than the cash location preference). With iRebal, these rules can be customized to reflect the individual methodology of each firm. You can program iRebal to address such complexities as how often to rebalance, how tax consequences and trading costs affect the rebalancing decision, which account to sell from and which to buy to if you have a taxable account and a tax-deferred account and you want to change your asset mix. But while iRebal's rules can be complex, they are transparent. This was an important distinction for Cameron Sheehan, operations manager of the security group at advisory consulting firm Moss Adams in Seattle, who recently purchased iRebal. "iRebal's rules are extremely transparent, which fits in with our compliance culture," Sheehan says. "You can almost build your Investment Policy Statement into your rules." iRebal's ability to generate trades efficiently is what appeals most to Ken Solow, chief investment officer at Pinnacle Advisory Group in Columbia, Md. "We are tactical asset allocaters, so we use iRebal as a trade creation tool," he says. "We've done a tremendous amount of trading lately, and the program has performed flawlessly." If there's a downside to iRebal, it's the $50,000 pricetag, which puts the program beyond the means of smaller firms--those managing less than $250 million. And iRebal doesn't offer instant gratification. Each firm must create its own custom rules, which means installation will take time. Also, unlike some rivals, iRebal isn't an online solution; you buy the software and, if necessary, hardware to run it. But iRebal is the only rules-based product on the market today that can totally automate location-optimization rebalancing and order-generation in a cost effective manner. This can allow advisers to capture additional risk-free returns. And if iRebal allows you to "save" the salary of one portfolio manager, the value proposition is compelling.

Tamarac Advisor 5.0
With prices reportedly starting in the $10,000 range, Tamarac Advisor 5.0 is often cited as a less expensive alternative to iRebal. According to the firm's website, the product "is a robust, web-based, global rebalancing and trade order generation system that provides customized, tax efficient rebalancing across an unlimited number of accounts or families." At first blush, it sounds very similar to iRebal, but on closer examination, the products are quite different. Tamarac CEO Richard Thomas was kind enough to demo the latest version of the tool for me.

Unfortunately, I wasn't provided a test account in order to navigate the program on my own; as a result, my observations are based primarily on the demo and input from advisers who use it. Tamarac Advisor 5.0 has some nifty features. It excels at optimizing portfolios of individual securities and/or ETFs (the program can look through the ETF to the securities within it). Steve Shnaper of The Danforth Group has been using Tamarac for about six months. "When we make a decision to buy one security and sell another, Tamarac helps us optimize the portfolio, "he says. "It also helps us flag constraints we may have established for the portfolio, such as sector weightings. The program can also look at the cash balance and calculate the number of shares to buy." Mark Scheffler, founder of the Appleton Group in Appleton, Wis., is also a fan. "We offer
separately managed accounts and mutual funds that invest primarily in ETFs," he says. "We use Tamarac as a tool to manage risk, to manage portfolios of ETFs to a model and to generate trades."

Tamarac lets advisers rebalance a portfolio of mutual funds at the asset-class level. You can create minimum/maximum ranges for each class, and tell the program to rebalance only when an asset class moves outside the bands. The user would rank every security in the class for desirability, and the program would buy the highest-ranked security. If you only use a few models with deferred accounts, this methodology might be acceptable. But, if each client has a unique portfolio mix, it can be problematic because the security rankings will change over time and differ across clients. Plus, you would probably need one ranking for taxable accounts and another for tax-deferred accounts. The firm claims it will add the ability to create separate rankings soon. Therefore, when it comes to rebalancing portfolios of mutual funds, some advisers question Tamarac's utility. Balasa Dinverno & Foltz in Itasca, Ill., has used Tamarac to optimize portfolios for five years, says Principal and Co-President Mark Balasa. But that didn't stop his firm from buying iRebal for rebalancing. "When we invested in iRebal, we weren't aware that Tamarac was going to release a rebalancing product, but it would not have mattered if we did," he says. "I can't understand how you can rebalance using an optimizer. Any optimizer is a black box." Not knowing what drives the decisions in an optimizer raises objections from other planners. "Our firm considered Tamarac, but we preferred a rule-based system," Solow says. Mike Leonetti, CEO of Leonetti and Associates in Buffalo Grove, Ill., agrees. "Tamarac works well when managing portfolios of individual securities, particularly when you are managing to a model, but for pooled products such as mutual funds, we find iRebal's rules-based approach appealing." Using an optimizer instead of a rules-based system raises two concerns. Optimizers use proprietary models. If their underlying assumptions are incorrect, the output will be incorrect. Another problem is optimizer constraints. A portfolio built at the asset-class level using an unconstrained optimizer is often inconsistent with a diversified portfolio that an adviser would recommend to a client. If an optimizer recommends a large allocation that makes advisers uncomfortable, they can apply constraint, but if they constrain an optimizer too much, they are in essence dictating the output.

Tamarac Advisor is particularly well suited to advisers managing portfolios of individual stocks to a model, but it isn't as appropriate for those managing customized blends of mutual funds selected by asset class and managed at the household level. If transparency is an issue, Tamarac is not an ideal choice. We don't view it as a direct rival to iRebal, but rather as a separate class of software product.

eAllocator
If you can't afford $50,000 for iRebal, and Tamarac doesn't appeal to your process or your budget, eAllocator is another option. This server-based program is so new that only three firms are using it, but it is modestly priced at $5,000. Developed by Joel Javer, a principal at Sharkey, Howes and Javer in Denver, the program doesn't automate the rebalancing process, but rather facilitates manually rebalancing. With eAllocator, the financial adviser sets a rebalancing schedule for each account at the outset. Say you decide to review portfolios with higher expected standard deviations monthly and those with lower expected standard deviations quarterly. You can program those schedules at the account level. You enter the program at the To Do screen, which lists the accounts, the
last review date, the scheduled review date, the balance and the model associated with the account. Select an account and click "view" to see a summary of the holdings, the target by class, and the difference in percentage and dollar terms. A modest percentage difference is highlighted in yellow; a substantial difference is shown in red. If a client is overweighed in U.S. large caps, you can drill down into the class to display every stock, its purchase date, tax basis and gain or loss. If you sell a holding, click on it to prepopulate the list of proposed trades with the appropriate symbol, then select an action (sell) and a dollar amount. As the trades are entered, the program updates the asset allocation, so you can see the impact immediately. eAllocator offers some of iRebal's framework, but a human, instead of a computer, is the rulesbased engine. The program will remind financial advisers when to review an account and identify asset classes that deviate from the model, but after that, it's up to the adviser to decide what, if anything, to sell or buy. As a result, eAllocator is good for firms that rebalance on a calendar basis, want to rebalance manually--but as painlessly as possible--and have relatively few accounts.

The program has two flaws. You can view accounts at the household level, but you can only execute trade orders at the individual level. Javer says eAllocator is adding the ability to create trades at the household level. You also can't view the status at individual tax lots. You just get an average tax basis for the entire holding. eAllocator offers a more modest set of tools that either iRebal or Tamarac. It won't automate rebalancing and trade generation, but it will help manual rebalancers to be more efficient. Low market returns combined with Gobind Daryanani's research are raising financial advisers' consciousness about rebalancing. There are big differences in approach, pricing and capability for the three products available that claim to help advisers rebalance. Those who primarily invest in mutual funds and want to capture the excess returns implied by Daryanani's research would be best served by purchasing iRebal, if they can afford it. Those who want to pursue a similar approach manually will find eAllocator most useful. Tamarac could be used for rebalancing portfolios of mutual funds, but it appears better suited for advisers who want to optimize a portfolio of individual securities.

Joel Bruckenstein is a technology consultant to advisers and publisher of Virtual Office News, a practice management and technology newsletter. He can be reached at joel.bruckenstein@gmail.com.

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