Why Pay For Rebalancing Software When You Can Get It For Free? Because There No Such Thing As A Free Lunch

Tuesday, May 07, 2013 20:17
Why Pay For Rebalancing Software When You Can Get It For Free? Because There No Such Thing As A Free Lunch

Tags: advisor technology | Portfolio Management Software | rebalancing | technology

Custodians are giving away lots of great stuff for free! And, isn’t free better than shelling out money? It would be nice to say yes, and I’m sure many of you would like the answer to be yes. However, the old adage remains true: There is no such thing as a free lunch.


I am bringing up this issue because custodians have begun to offer RIAs rebalancing software for free, and they are trying to compete with independent vendors like my company, which makes Total Rebalance Expert.


First, let’s start with the big picture. As an RIA myself, it’s a little scary for me to put all my eggs in one basket. If I tell my clients they need to be diversified, then how can I overweight my reliance on just one vendor? Would it be prudent to let the firm that will custody my clients’ assets also supply me with tools of my trade? What if the custodian gets into trouble with the SEC, decides RIAs are not that important to its business model, gets taken over by a firm I don't like, or changes in some other way that I can't imagine today? Would I be in any position to do what's in my clients’ best interests? How indpendent would I really be if I am so reliant on my custodian to do business?

Looking at the specifics, there are two types of free rebalancing programs offered by custodians: very basic programs and the promise of something much better.

The basic programs, for example, those offered by Schwab or Fidelity, provide a simple “sell from column A and buy from column B” solution. These programs are helpful, but don’t offer more advanced functions such as householding or tax-aware trade recommendations. As CEO of TRX, I’ve seen that advisors who start out using a basic rebalancing program, are more inclined – and have an easier time – taking the next step to a more robust solution.


So, how about a custodian’s offering of a free, fully functional, do-it-all, online rebalancing solution? Why would any money-savvy business owner consider anything else? Some thoughts:

  • If the solution isn’t multi-custodial, are you prepared to give up on multi-custodian clients, a second custodian offering for your firm and revenue opportunities from managing 401(k) assets?
  • Although free sounds good, if the alternative is $5,000 or so, shouldn’t you be choosing the best solution for yourself rather than trying to save a few dollars
  • Finally, is the free program available to you now? When will it be through its beta test and ready for prime time? Will it truly do everything it promises?

And what kind of future will this product have? With little or no direct revenue coming in from the product, it could be difficult justifying  resources to upgrade it. With technology for rebalancing improving every quarter, it is crucial to be able to keep up with the latest features and tax laws and to add ways that help advisors optimize after-tax income portfolios. Can a rebalancer that's free keep up with that? How much will it cost you to convert to another rebalancer in a year or two because the free product has not kept pace?


You are building a high-quality, growing business. Just as you believe clients should choose you based on your expertise, not by fee-shopping, you should be choosing software based on what will be most beneficial to your firm and your clients over the long-term. Robust rebalancing software can provide an annual boost to your bottom line of almost $600,000.  (See the latest Return on Technology Investment white paper at http://www.trxpert.com/roti/ls_contact.php/.)

Doesn’t it make sense to select your software based on benefits? There is no such thing as a free lunch.