I recently completed a survey with an advisory office in California who were exploring automated rebalancing solutions. This can be an area overlooked if all of the labor and resources related to rebalancing accounts are not taken into consideration.
In the case of this office – with 123 clients and $211 million in assets under management – it was a clear decision once the analysis was completed.
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The team has three scenarios when rebalancing:
1) Accounts with no individual bonds
2) Accounts with individual bonds
3) Accounts held on a TAMP (third-party asset management platform) with its own rebalancing engine
The task areas included:
· Identify accounts for rebelancing via drift report review
· Meetings both as a team and with individual clients to discuss options and ramifications
· Updating of the manual template and linking to records for documentation
· Principal review of accounts to be rebalanced to confirm trading activity
· Create trade tickets for rebelancing
· Principal review of trade tickets
· Place trades
· Principal review of posted trades
Based on these scenarios and processes – the team found that for each round of rebelancing en masse, they were using up 100-120 hours across five staff. This was done up to four times annually – resulting in a maximum of 480 hours spent on rebalancing. At the rate of growth forecasted for this practice – they saw this eventually tailing upward to nearly 600 hours over 5 years.
By looking at automated solutions in the marketplace – they found that not only could they automate much of the reporting and assembly, but also the most burdensome task – assembling trade tickets – would be nearly eliminated using a third party solution. Also – the major providers in this sector also integrated directly with the custodians they utilized.
In first year costs – buying an automated rebalancing solution will frequently break even – however – it is the ongoing reduction of hours spent on the rebelancing process (in this case a 75% reduction in time spent on the process) will reap ongoing savings.
The remaining 40 hours per rebalancing session are well spent on valid tasks – client and team meetings, principal review and documentation. The system handles the administrative and labor intensive tasks. This practice now has significant scale to grow without overwhelming administrative staff or having to hire additional team members for trading-related activities.