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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.


The next step—adopting and integrating more applications

When our technology provider, Envestnet | Tamarac, introduced a client relationship management (CRM) system that integrates with the rebalancing application, we jumped at the chance to further modernize our technology suite. And a few years later, when it rolled out an application for integrated performance reporting, billing, and client portals, we continued the adoption of technology solutions for the benefit of our clients and our firm.

Now that the fully integrated technology suite is in place, the results are immediately evident. Our operation is much more efficient. Any team member can instantly find account data from across the platform, and our staff can create engaging client-facing reports in minutes. Preparing and delivering quarterly reports and invoices, which used to require a month-long team effort, now can be completed in a week by just one person.

Envestnet | Tamarac’s fully integrated Advisor® Xi platform has also strengthened our engagement with clients. The CRM provides all team members with a repository of client communications for every account, enabling anyone to step in to assist a client who calls with a question. In addition, clients can easily access account reports and updates, and post communications of their own for advisors, in a secure environment via the client portal. Furthermore, we can better engage with our clients’ accountants by uploading gain/loss and income reports (which CPAs find useful for annual tax planning and quarterly estimates) to the client portal’s document vault.

As our experience demonstrates, now that technology solutions are available from dedicated providers that work alongside RIA firms to both automate workflow processes and integrate major functions, the build vs. buy decision is easy. In 2008, we managed $450 million in client assets. We now manage $801 million in assets for over 260 clients (as of December 31, 2015) with a team of just 16 people. Our revenue per employee has increased by approximately 70% since 2008, and we expect to continue to grow without having to hire additional back-office staff. This wouldn’t be possible if we still relied on stand-alone, homemade technology solutions.

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