ADVISOR FORUM

A Data Manager’s Perspective on Rebalancing

We spoke with Amy Wilhelm, client services representative and data manager, about the firm, her role and how she uses the Schwab Account Rebalancing Utility, a new capability of the PortfolioCenter® Export Wizard.

Wilhelm reported a big efficiency improvement over the firm’s old process, which relied on the SchwabLink® Fund Rebalancer for mutual fund rebalancing and manual data entry for other assets. Several times, the firm has rebalanced more than 500 portfolios against 10 models. Already, Wilhelm has found that the new utility works with all three security types—fixed income, equities and mutual funds—and can even prepare a trading file to be uploaded to the Schwab Institutional Web site. Wilhelm explained how the utility saves her time by providing data that’s easy to review and edit and is more accurate for trading.

SPT:  Amy, tell us a little bit about your work at King Dodson Armstrong.

Wilhelm:  I’ve been with King Dodson Armstrong since their beginning in August 2002, but I’ve worked in the industry for nine years. I have extensive client service experience, both with KDA and a previous firm. As far as my role in our firm, I am primarily a data manager. I am responsible for inputting and maintaining our electronic data as well as using the software to generate reports. I support all three of the firm’s principals—Kelley King, Ken Dodson and Diane Armstrong—but I work primarily with Ken, who is the principal overseeing investment management.

SPT:  We know you just started using the new rebalancing utility about two months ago. What kind of an impact has it made?

Wilhelm:  I’m able to manage the data and work with the investment manager more efficiently, and I think we’re both more confident in the overall accuracy of our trading.

SPT: Can you tell us about an average week that might include your use of the Schwab Account Rebalancing Utility?

Wilhelm: To be honest, we don’t run the rebalancing utility every week to see what’s out of tolerance. Many times, we’re looking at cash balances to determine the need to trade. We can often just tell from the Money Balances report—when balances vary from the median—that we need to run the rebalancing utility.

SPT: So you’re actually prompted by what you see on the Money Balances report?

Wilhelm:  That’s right. We run the Money Balances report once a month to help us find accounts with cash issues and then run the rebalancing report to point out where adjustments need to be made. I often use rebalancing reports for cash withdrawals, deposits, changes in investment strategy and when I want to compare similarly invested accounts.

SPT:  Tell us more about your workflow.

Wilhelm:  I’m running the report, reviewing it with Ken for trading decisions, and then running the utility to physically generate the trades. By using the rebalancing export tool, Ken and I are able to review trades more efficiently and spend less time on the overall process. I have more time to spend on maintaining our data, and Ken has more time for investment research.

A Whole New Rebalancing Process

Compared to the old process, Wilhelm finds big advantages in using the new utility.

SPT: What was your rebalancing process like before?

Wilhelm: Due to the fact that we were keeping data in two different places—PortofolioCenter and SchwabLink®, I didn’t feel like I was looking at exactly the same thing each time, and I always felt like there was a significant potential for human error. I felt much of my work time was spent checking to make sure ALL the information matched in both places before I could even begin to look at trade reports.

SPT: So, previously you maintained two sets of data. How long did it take?

Wilhelm: Given the nature of our practice and the large number of accounts, a large trade—over $2 million, let’s say—it wasn’t unusual to spend two days getting things where I wanted them before I placed the trade. The first day, I would extract the data and begin to process it for accuracy. Then I would generate the rebalancing trades and begin the final checking step, which almost always required repeating the generation of rebalancing trades a few times. Now, it takes roughly half the time. Even with a large trade, I can do it in the same day, no problem at all.

SPT: Wow, that’s a lot faster. Tell us how.

Wilhelm: Using the new utility, you’re working with one set of data all within PortfolioCenter. There’s little room for error because you’re exporting from the original data rather than re-keying data from the rebalancing reports. And now you can also review it in different ways, and edit it after you’ve exported with the new utility.

Managing Trade Data More Efficiently

Wilhelm explains how she sorts, reviews and edits trades, and why accounts may be exceptions from the model.

SPT: What do you mean by editing the data?

Wilhelm: Now I can edit trades in Excel and review what the rebalancing utility is generating. Excel enables you to sort the data differently or look at it from different views, and I like that. It is one of my favorite features of the new utility.

SPT: Can you give us an example?

Wilhelm: I often let the rebalancing utility determine the trades, but there are those exception accounts that don’t fit the model. For instance, if we have a piece of fixed income in an account that’s really designed for equities. I worry less about accidentally trading the exception piece. I know I can go into Excel, see that the account has fixed income, and edit it right there by removing that trade. I can also sort trades by account or I can actually look at all the equities, all fixed income or all mutual funds, or sort by buys and sells.

SPT: That sounds really easy.

Wilhelm: It is. All of our reports are coming out of PortfolioCenter. You can get the data in many different ways and review it, and you don’t have to go outside of PortfolioCenter. It’s all right there. It’s one-stop shopping.

Keeping Portfolios In Line With Their Models

Using security-based models, King Dodson Armstrong uses minimums, maximums and other settings to prepare trades for equities, fixed income and mutual funds all in one program.

SPT: How does your firm use model portfolios in rebalancing?

Wilhelm: We use 10 models, based on individual security positions. Although we have started thinking maybe we have enough client exceptions in portfolios that we need to start writing customized models, which are easy to set up. It just takes time to build a model for each individual portfolio.

What I’ve learned recently working with the models is how to set the minimums, maximums, tolerance and lot size for each security type, which really helps to set up the most reasonable trades.

For example, if you have a client that owns IBM and wants to maintain a certain amount, you can include it right in their model and you’re done. You don’t have to worry about it. You can set IBM at that percentage, with whatever minimum and maximum you want, and when it goes outside those parameters, it shows up as out of balance.

SPT: You mentioned sorting by equities, fixed income and mutual funds before. Do you have more than just equities in your models?

Wilhelm: Yes, many of our models include more than one security type. And that’s another big plus in this rebalancing utility: the fact that you can work with individual stocks and bonds, mutual funds and ETFs in one program, and prepare trades for all three. And when we started using the utility in October, we were also able to upload all the trades using Schwab Institutional Web Trading. Between the new utility and Web Trading, placing trades for any security type is simpler than ever.

“Now, rebalancing takes roughly half the time. Even with a large trade, I can do it in the same day, no problem.”

Tips For Getting Started

Benefit from Wilhelm’s experience by following her tips for rebalancing using the new utility.

SPT: Thank you for sharing your firm’s perspective. What would you recommend other firms do before using the utility for the first time?

Wilhelm: I would recommend that you:

• Know your data—both what you’re looking at and what you’re looking for
• Know your models and how to use them
• Start small—try it with a couple of accounts first, so you understand how it works
• Know Excel—I don’t think you have to be overly proficient in Excel, but I think you do have to understand what it’s capable of to get the full impact
• Watch the short Flash video and other documentation available, which really helped me get started right away.

We hope you enjoy reading the real-world advisor perspectives we highlight in the Advisor Forum. Join us next issue to read about another firm and its business practices.