Review Detail

Great analysis Blaine!

Throwing bodies at the challenge may have worked somewhat in an up market with less frequent rebalancing or tactical moves. However, as you stated, this does not scale.

Aside from the operational aspects of manual rebalancing, I urge Advisors to consider the the high potential for error, lack of controls, and lack of documentation that is associated with manual rebalancing.

When the regulators come in (tomorrow or several years from now), will your Excel sheet be "bullet-proof"? Will you be able to find it? Will the Operations person that customized this still be employed with you? Can you be certain that Excel - cell ZZ21432 really mapped to Mrs. Smith's account?

When selecting a system, ensure that it at a minimum has the following features:

1. Encryption/access control.
2. Complete audit trail tracking every keystroke to a client account.
3. Retention of transactions and account changes.
4. SAS70 review of the system and internal controls at the provider.
5. Provider must also have a solid Business Continuity Plan.
6. Model management features to facilitate the rebalancing decisions. Ability to factor in numerous scenarios, including client restrictions, holding periods, contributions/withdrawals, etc.
7. Ability to analyze data at the lot, sleeve, account, group or household level. As many clients are requesting rebalancing at the household level, you need to make sure your technology is sophisticated to manage this. Otherwise you risk making unnecessary trades, potential tax issues like wash sales, and burning unnecessary resources.

These features will also aid you Chief Compliance Officer with risk management, compliance review of client accounts and ongoing assessment of the effectiveness of the Advisor's compliance program.