Proactive vs. reactive rebalancing
Market volatility, ongoing since the pandemic’s first surge in March of 2020, has only gotten more severe. From the Russia-Ukraine war to rising inflation to uncertainty about COVID-19 and other global health concerns, markets are constantly reacting to daily headlines and potential new challenges. And while the most oft-touted advice during times of volatility is to simply do nothing and stay invested, that can be a nearly impossible emotional hurdle for clients watching their investment performance suffer. As part of keeping their clients calm and addressing their concerns about whipsawing markets, many advisors have responded to volatility with action: automated rebalancing and tax-loss harvesting.
But such a reactive approach to rebalancing isn’t sustainable, as continued market volatility underscores the need for advisors and asset managers to quickly and proactively monitor and make tactical decisions across their investment portfolios. This requires real-time information to make the appropriate moves based on knowledge – rather than fear – at scale, as well as the ability to change investment strategies according to shifting client preferences while performing large rebalances in lockstep with the market.
Why rebalancing and trading technology is non-negotiable
While we’re still seeing so many things through the gauze of pandemic and politically fuelled unrest, one thing has become clear: robust and proven rebalancing technology will be necessary for advisors to remain competitive. Even advisors who are coaching clients through buy-and-hold strategies will still need to assure them of the choices made, while quickly aligning portfolios to changing risk tolerances and preferences.
And clients aren’t the only ones who need guidance and support in our current volatile climate. Advisors, too, are continually striving to improve efficiency and performance, which requires being able to easily access and act on things like client constraints, rules and exceptions in a fast-moving market. Spreadsheets and reliance on manual recall are roadblocks to efficiency and accuracy, but a powerful rebalancing and trading application can help advisors maintain and implement critical information. Institutionalizing knowledge within an integrated tool also reduces risk and enables continuity; should a client’s primary advisor or portfolio manager leave the firm, another advisor with the firm can easily pick up where they left off.
Finally, regularly documenting rebalancing and trading procedures is cumbersome and error-prone when it’s done manually. An automated system improves both speed and accuracy.
Rebalancing with intelliflo redblack: A $1 billion case study
Increasingly, advisors are leveraging what-if scenarios on model allocation changes or tax-loss harvesting events. With the right rebalancing software solution, advisors can test different types of scenarios across their entire client base, or a subset. One particular firm using our intelliflo redblack rebalancing and trading solution was looking to harvest tax losses across 6,000 accounts, but was unsure of the specific day they would (or should) execute the rebalance. Using what-if scenarios in intelliflo redblack, the firm was able to run a tax loss harvesting rebalance each day to mock-up orders in case they decided to trade. When the right day came, they were able to execute more than 70,000 orders worth over $1 billion seamlessly using intelliflo redblack’s order management functions.
The key to modern growth and adaptation
In an increasingly complex and competitive world, advisors can’t afford to be hamstrung by manual roadblocks affecting their ability to serve their clients. Markets are moving faster than ever and uncertainty is at an all-time high. Going digital is no longer an option – it’s a must. Advanced rebalancing and trading technology can empower RIAs, family offices and investment managers to quickly adapt to change, scale to growth, and do more for their clients.