Build or Buy? To Truly Modernize Your RIA Practice’s Technology, Choose the Latter

Build or Buy? To Truly Modernize Your RIA Practice’s Technology, Choose the Latter

Written by: By John Kirkpatrick | Stanford Investment Group

The question in the headline is one that entrepreneurs across all industries ask themselves as their businesses grow and compete.


Obsolete software applications and operating systems are a threat to survival in today’s digital age, especially for independent RIAs, which are under increasing pressure to be more efficient, precise and responsive. The pace of change and level of sophistication in technology are increasing at what seems to be an exponential rate. It is simply no longer possible for an RIA with a few good technology skills to keep up.

At Stanford Investment Group, we have tangible experience with both building and buying technology to modernize our RIA firm. Experience is the best teacher, and we possess the wisdom to know for sure that partnering with a technology vendor that emphasizes integration and automation is now the ideal long-term solution for independent RIAs.

Growing up with Silicon Valley


Our wealth management firm was established in 1982 in Mountain View, Calif.—the heart of Silicon Valley—as a broker-dealer. As the tech world grew and prospered, so did we—by working with entrepreneurs and their families, and high-net-worth individuals and families, to manage wealth through sophisticated financial planning and investment management.

In the late 1980s, we began building up the RIA side of our business, and it soon became our predominant area of service. We were one of the first RIAs on the Charles Schwab & Co. platform, and they remain our primary custodian today. Working with technology entrepreneurs and developers rubbed off on us, and we created a suite of in-house software to power our financial planning and portfolio management, filling a need that was not served by commercially-available solutions at the time.

But our areas of expertise are in wealth management, not technology development, and we found ourselves struggling to keep up with the ongoing support and enhancement needs for the software.

For example, we developed a Microsoft Excel-based program to rebalance accounts. Our advisors used spreadsheets to calculate allocations and define trades, and would then generate paper trading tickets and hand those tickets to a trader who would manually enter each one into Schwab’s trade blotter.

Our rebalancing solution was creative, but its rebalancing and trading workflows were still quite labor-intensive and did not enable us to scale for growth. The solution also was not conducive to executing nimble responses to market conditions. These limitations became clear in 2007, when the market began experiencing gyrations that would culminate in the worldwide financial crisis the following year. We found it challenging to keep up with the huge surge in rebalancing activity necessitated by the market fluctuations. This prompted our decision to find a commercial rebalancing solution that offered flexibility and automation, and would allow us to spend more time focusing on our clients and less time on software and trading.

Going from building to buying—and just in time


In 2007, we conducted a search for a commercial rebalancing software application. Our due diligence led us to choose Tamarac Advisor Rebalancing (now Envestnet | Tamarac). Our decision was based equally on the capabilities of the solution and our belief that the company would be an ongoing technology partner that would be there for us long after installation was complete. Indeed, Tamarac assigned us our own dedicated implementation team to handle system and data conversions, as well as train our staff. After we were up and running on our new rebalancing solution, Tamarac continued to monitor our progress and roll out regular product enhancements and updates.

Knowing we had an engaged and enthusiastic partner was especially comforting for us—because the financial crisis was unfolding just as we were acclimating to our new software. We adopted our automated rebalancing solution just in time, going “live” in mid-2008. By automating our rebalancing and trading workflows, we could make portfolio changes across hundreds of accounts and households, and customize rebalancing settings for each account according to their goals and objectives. We estimate that we saved, and continue to save, about three to four days of labor per month alone on trade execution and compliance trade review. In addition, the application removes a potential error point by eliminating the re-entry of trades from paper trade sheets.  

Imagine how much more time we would have spent on rebalancing in an unusually hectic period like 2008-2009 if we had to continue manually going through every account to make changes!

We also improved the consistency of client portfolios by standardizing risk-based allocation models, and benefited from a significant increase in the speed and efficiency of implementing changes to our target models. Furthermore, the rebalancing solution allowed us to easily perform tax-loss harvesting to help maximize the tax efficiency of our clients’ portfolios.

All of these operational efficiencies gave our small team of advisors the freedom to spend more time working with clients—enabling us to strengthen our client relationships as well as efficiently grow our practice during an extremely uncertain period.

Read More...

Guest Contributor
Twitter Email

If you are interested in contributing a guest article, please contact us here.

Retirement Planning Has Its Limits: How to Prepare

Retirement Planning Has Its Limits: How to Prepare

Retirement planning is one of the issues that commonly leads clients to consult financial advisers. One of its essential aspects is creating a plan to save and invest in order to provide a comfortable retirement income. Ideally, this starts many years ahead of retirement, even as early as your first paycheck.

As retirement comes closer, planning for it expands to take in a host of other considerations, such as deciding when to retire, where to live, and what kind of lifestyle you hope to have. When retirement becomes a reality, the focus shifts to carrying out the plan.

All of this planning is crucial. Yet, for both financial advisers and clients, it's good to keep in mind that planning has its limits. In the post-retirement years, it may be helpful to think in terms of preparing for old age rather than planning for it.

The older we get, the more important this distinction between planning and preparing becomes. Too many life-changing things can happen without regard to our best-laid plans. Often they occur unexpectedly, resulting in emergency situations where urgent decisions have to be made. A stroke or a fall, a diagnosis of terminal illness, a broken hip that leaves someone unable to go back to independent living—and suddenly, right now, the family needs to find an assisted living facility, arrange for live-in help, or sell a home.

What are some of the ways to prepare for these contingencies?

  • Explore housing options well ahead of time. Find out what assisted living, home care, and nursing home services and facilities are available where you live and whether they have waiting lists. Have family conversations about possibilities like relocating or sharing households.
  • Research the financial side of these options. Investigate the cost of hiring help at home, assisted living facilities, and nursing care centers. Find out what is and is not covered by Medicare and long-term care insurance. For example, people are sometimes surprised to learn that Medicare does not pay for nursing home care other than short-term medical stays.
  • Designate someone to take over decision-making, and do the paperwork. Execute documents like a living will, medical power of attorney, and contingent power of attorney. Update them as necessary, and give copies to your doctors, your financial planner, and appropriate family members.  
  • Start relatively early to downsize. Well before you're ready to let go of possessions or move into smaller housing, start considering what to do with your "stuff." Focus on the decisions rather than the distribution. There's no need to get rid of possessions prematurely, but decide what you want to do with them—and put in writing. Do this while it's still your choice, rather than something your family members do while you're in the hospital or nursing home
  • Do your best to practice flexibility and acceptance. No matter how strongly you want to live in your own home until the end of your life, for example, it may not be possible. The physical limitations of aging can limit our choices, and even the best options available may not be what we would like them to be. It is a profound gift to yourself and your family members to accept these realities with as much grace as you can muster.
     

Finally, please don't underestimate the importance of planning financially for retirement. Because the bottom line is that you can't plan for all the things that might happen as you age, but you can prepare to deal with them. One of the most useful tools to cope with those contingencies is having enough money.

Rick Kahler
Advisor
Twitter Email

Rick Kahler, MSFP, ChFC, CFP is a fee-only financial planner, speaker, educator, author, and columnist.  Rick is a pioneer in integrating financial planning and psycholog ... Click for full bio