ADVISOR FORUM

Kays Financial Uses Technology for Target Rebalancing and Exceptions

Dean Wilson of Kays Financial Advisory Corporation explained how his firm uses Tamarac software with PortfolioCenter to handle portfolio exceptions and perform target rebalancing at the security level.

As the firm grew, it faced a common challenge: efficiently handling exceptions in the rebalancing process. Wilson, who trades for the firm, needed a solution that would automate the processes required to make security-specific changes to portfolios—without having to review every account exception every time. Before the firm started using Tamarac, Wilson had to perform these processes manually. Now, this third-party solution enables him to create models within PortfolioCenter and perform mass rebalancing while preserving client exceptions.

SPT: Why did your firm decide to look into a third-party solution?

Wilson: We believe that if you're really listening to what clients say they are trying to accomplish, you can't just use a cookie-cutter model to help them reach their goals. So our need was that we have all these exceptions in our client base that reflect our clients' specific interests. Now, we do have models, but many clients have their own exceptions. When it came time to rebalance, we perform what we call target rebalancing, which is a security-specific approach as opposed to changing the whole allocation model.

Generally, as a firm grows, it takes a lot of time to ensure that you're capturing client exceptions when you're using manual processes. Of course manual processes are prone to error, and we want to eliminate that as much as possible. So that's what drove us to find a way to automate all of these exceptions.

SPT: We've found that to be a common problem for advisors in the rebalancing process.

Wilson: I'm sure it is for all firms that outgrow their manual processes. PortfolioCenter, for example, came out with a few tools to help rebalancing, but it doesn't include the ability to code exceptions on an account level. So the feature that we were looking for was a way to assign exceptions at the account level so that when it was time to mass rebalance per model, the exceptions would be accommodated.

Rebalancing Using Tamarac—Process And Workflow

Responsible for trading—and more—for his firm, Wilson describes his rebalancing process and how Tamarac helps him to save time and work more efficiently.

SPT: We're interested in hearing about your process using Tamarac.

Wilson: Well, to use Tamarac you've got to upload your data into the application. So the first step in the process is making sure that the PortfolioCenter data is good. For example, does every new account that came in this week have a model assigned to it? Are the models and account positions up to date? Once that is confirmed, it's an easy upload into Tamarac. Even though it's possible to build models in Tamarac, we don't because then we would be doing it twice. We use Tamarac solely for mass rebalancing. By mass rebalancing, I mean multiple accounts across multiple models.

SPT: I see. What do you do next?

Wilson: Next, we build criteria, selecting and filtering for the accounts that we want to apply that trade to. Then we use an optimizer in the program, which runs a check and flags any potential problem accounts. For example, if an account has margin on it and yet we've included it in trade, it will inform us that there is no cash in the account and ask if we still want to execute the trade. So it will catch potential problems like that. I can then confirm, input a temporary override and go through with the trade.

SPT: Are there any other Tamarac features you're using?

Wilson: One feature we really like in Tamarac is what they call a directed trade, which enables us to target rebalance by focusing on one security at a time. Using Tamarac, I can build a directed trade and define exactly what I want to do.

SPT: It sounds like it has a range of tools to help you account for those exceptions and automate how they're handled.

Wilson: Yes, and that's why we went with Tamarac. We had interviewed other firms that didn't offer solutions for handling exceptions, unless you had a staff of two or three programmers. We said, “For crying out loud we want to work smarter not harder here.”  We researched many third-party vendors looking primarily for that feature—that is being able to assign exceptions at the account level and still execute mass trades—and we didn't find that many, frankly. 

SPT: That leads into the next question. What benefits do you experience using these Tamarac features?

Wilson: I haven't taken advantage of all the features in the program, and it's still cut down my time by around half. Trading basically has been a one-person function all along. It's just a matter of time and gray hair. A typical mass trade would take four hours and now it takes two. Recently, we've been averaging about one mass trade every two weeks, so it adds up.

SPT: And as your firm grows in the future, you'll probably be able to handle more trading efficiently.

Wilson: That's it exactly. Since I have multiple responsibilities, we don't want trading to take any more time than necessary. So yes, our capacity for growth should increase without absorbing more of my time. But it's not only that. It gives us and our clients peace of mind in terms of accuracy. We can meet with clients, review their directives and, when they have a new trading qualifier, we can tell them, “We'll program that in.”  We consider that a qualitative benefit to our client service.

Supporting The Solution With Service

A product is often only as good as the service the company provides. Wilson describes how getting the software up and running for his firm was aided by individual, responsive service.

SPT: It sounds like you're experiencing many benefits from the Tamarac product. Has the service they provide also met with your expectations?

Wilson: Yes!  I think Tamarac is the epitome of what makes America great. That sounds like a lot of hyperbole but the point is they have an entrepreneurial spirit. They are exceptionally responsive. I called them once and said, “You know, this feature isn't working too well. Am I missing something?”  A programmer modified the software within eight hours or so and boom—problem solved. It's a flat organization and really—this will sound cliché too—but in technology it's just a matter of months before somebody mimics the latest features. It comes down to: are they going to support those features? I have been extremely pleased with the way the company has supported their product.

SPT: That's quite a statement you made about the company and their responsiveness.

Wilson: Oh yes, I know, but they've been so great to work with, I can't help raving about them. In the last several months the company's brought on some new experienced people on the customer service side. But having a discussion with a programmer, who listens to a client and responds is priceless. You don't see that these days. For instance, Tamarac quickly provided a workaround solution to get pricing data for fixed income products. That was critical for us. 

Implementing The Solution And Recommendations For Other Firms

Factoring in the time it takes to get new software and processes up and running is an important consideration when choosing a third-party solution. Wilson describes his experience with Tamarac and gives recommendations to other firms.

SPT: Well, you've been using this solution for about four months now. How long did it take you to get it set up and adopt it for your firm?

Wilson: Not long. I spent some time perusing the manual. The company sends you some files and you use the PortfolioCenter Export Wizard to get started. It's all pretty clear. The initial start up is nothing. It's getting around the application that can be kind of intimidating. When you go into the Tamarac application, for me it's a bit challenging to see where you want to go. There's a bit of a learning curve there. But when you're dealing with a feature-rich program, what do you expect?

SPT: Are there still features that you haven't adopted yet then?

Wilson: Exactly, right. I know of a few things that would help us out if I could just get around to the inputting, but I just haven't done it yet.

SPT: Do you have any recommendations for other firms exploring third-party solutions?

Wilson: Yes—know what you're looking for in the solution. For us, it was features that enable us to automate the handling of exceptions to accommodate mass rebalancing. For other firms, it might be something different. 

SPT: Is there anything else you want to say about Tamarac and how it's worked for your firm?

Wilson: I'm just glad they exist because I think that, a few years ago, if you wanted some of the functionalities that they have, you'd have to pay through the nose either by hiring in-house programmers or paying $100,000 for a turnkey application. I just think they provide a great service, and it's going to help us. We're concerned about actively managing accounts with exceptions via mass trading, and they're certainly lightening the load.