ADVISOR FORUM

Foster Group Leverages Smart Sets for Scale and Efficiency

Foster Group’s dramatic growth over the last several years has brought challenges of scale and efficiency. The firm has leveraged technology and evolved processes which are essential to continued expansion. We talked with Travis Rychnovsky, Business Development Manager for the firm, to find out how Smart Sets and Custom Portfolio Fields, recent additions to PortfolioCenter, are helping streamline procedures and ensure consistency.

The firm has transitioned from being a single-owner entity to a seven-person partnership overseeing the efforts of more than 20 employees who serve nearly 700 clients and manage in excess of $900 million in assets. Needless to say, such changes introduce exponentially more complexity into the work of running the firm, which serves several groups, such as medical clinics, as well as individual investors. Rychnovsky was brought on to help bring order to this complexity. Smart Sets and Custom Portfolio Fields are helping make his job easier.

Set Management Before Smart Sets

Instituting a cultural change in the firm’s set management process streamlined operations for Foster Group at a key point in the firm’s growth.

SPT: Let’s explore your use of technology and process of managing sets—in terms of workflow, accuracy, and time spent—before you started using Smart Sets.

Rychnovsky: Behind every good firm and every good technology is a good process. A lot of the time spent on sets is just a matter of communication between what I’ll call operations, or back office, and other employees who actually have the information that the back office needs to determine appropriate set membership.

I don’t think we have experienced much of a change in workflow because of Smart Sets, but we have definitely seen improvements in accuracy and time spent.

SPT: About how many people are involved in getting those sets in place and maintaining them? And is it spread across the office or is it centralized?

Rychnovsky: We’re trying to centralize as much as possible because things just get too complicated to have everybody adding and changing data. I would expect to find this practice across the board as companies go from being small advisory shops to larger shops—approaching a billion dollars and 20 or so employees.

So we’ve centralized the data updating process with three people right now. I’d say 80 to 90 percent of data changes are done by one of those three people, with the other two people doing 10 to 20 percent of the data changes.

SPT: About how much time does that take?

Rychnovsky: It really depends on how many accounts we’re opening, because for each new account you open, you have to answer questions about which sets the account should go into. I’d say on average it takes a couple minutes per account. On any given day, we open up to seven new accounts. So maybe 15 minutes a day.

SPT: Can you give us an example of the questions you answer for each new account?

Rychnovsky: Each time a new account is opened, our contact management system prompts the requesting employee to communicate certain information: if the account is managed, if the account is billed, how the account is reported, what fee schedule the account should have, whether or not the account is taking an RMD, etc. The individual requesting the new account doesn’t push it off of their desk until they have answered those questions.They’re held accountable for communicating that information.

SPT: It sounds like you’re handling most of your set management on the front end, but obviously you will have to make updates to existing accounts later in the game. What percentage of set management would you say you handle up front with your clients?

Rychnovsky: Most of it comes up front, and that was a significant cultural change. We went from being reactive to being proactive. It wasn’t that way before, but it got to the point where we didn’t have a choice. Because here’s what would happen: we would wait until a certain process needed to happen that involved using a set, and then try to update the set at that time, at which point we would discover that the person who needed to update the set didn’t have the information to do so in an accurate manner.

So instead of approaching it that way—reactively—we determine what sets new accounts need to go into up front—proactively. Knowing that new accounts have been added to all appropriate sets, whatever process we do later on, we’re not concerned with determining set membership at that point. It’s a strategy to enhance accuracy.

Of course, our process is not perfect, but we continue to improve and make great progress.

SPT: That’s great. How many sets do you currently use? Can you give some examples of the kinds of sets you’re using and how they fit into your business?

Rychnovsky: I counted around 90 sets in total. That might seem like a lot of sets for a company of our size, but we have quite a few sets for the same core purposes—billing, quarterly reporting, and batch printing. We created the quarterly reports batch printing sets so that if the printer runs out of paper or there’s an error, it won’t throw off the whole print job. We probably have 30 sets just for that.

Using Smart Sets And Custom Portfolio Fields

Rychnovsky employs Smart Sets for efficiency and scale, leveraging a robust database to create a handful of Smart Sets. The team has also created Custom Portfolio Fields based on existing static sets. The result is increased accuracy, scalability and efficiency.

SPT: Now let’s talk about how you’re using the new set-building tools in PortfolioCenter 4.3. What influenced your decision to start using Smart Sets?

Rychnovsky: It’s an issue of efficiency and scale. There are definitely efficiencies that firms can gain by using Smart Sets. If you’re already entering the data point that is required to build a set, then using the Smart Sets will save the manual work that used to be required in order to build those sets.

SPT: And then once you have built your Smart Sets, you can easily update them whenever you like. Do you use the Batch Update tool to update them?

Rychnovsky: Yes. Each morning, one person in our firm downloads data, posts it to the database, does reconciliation—all those things. As part of his process, he also batch updates all of the Smart Sets. It only takes two to three minutes to update them.

SPT: Can you give us some examples of the Smart Sets you’re using?

Rychnovsky: Several of the Smart Sets we’ve built are related to billing.

Most of our clients pay by direct debit of their Schwab account, but some clients pay us by check. So we built a Custom Portfolio Field called Billing Method and specify either “From Account” or “Pay By Check.” Then we have a Smart Set that tells our billing person which way they’re going to pay their bill, based on the custom field that we set up.

We also have two other billing related components that we track: managed versus non-managed accounts and billed versus non-billed accounts. We set up custom fields for managed accounts and billed accounts. Then, we created Smart Sets based on those two components and their logical combinations: managed/billed, managed/non-billed, non-managed/billed, and non-managed/non-billed.

SPT: Billing is a great application for the new features. Any other examples you’d like to share?

Rychnovsky: Sure. Taxable accounts was an easy one because you don’t need a custom field; the taxable flag is already a standard field in the PortfolioCenter database. If your data in that field is correct, you can build a Smart Set that contains all accounts for which tax equals true. Then, you can use the Batch Update tool to update it automatically.

We also built a Smart Set for accounts that are taking RMDs. That one’s based on a custom field, because there’s no standard field for it. We set up a custom field that uses a yes/no criterion—RMD or not—and then the Smart Set is based on that custom field. The taxable and RMD Smart Sets were quick hits—everybody should be able to use those two concepts.

SPT: It sounds like you have used these two new features of PortfolioCenter in tandem?

Rychnovsky: Yes. Smart Sets are really powerful because of the Custom Portfolio Fields. They may be powerful as standalone features, but they’re exponentially powerful when used in unison. The two together are a great combination.

SPT: I see. Sounds like it could really help you down the road as well.

Rychnovsky: Yes. We do a lot of work with groups of people, like medical offices, for example. We oftentimes want to know who is a member of a particular medical office. Before the recent PortfolioCenter enhancements, we couldn’t build a set based on a data point that indicated a person is a member of XYZ Clinic because the data point didn’t exist. The only way you could determine who was in a group was by looking at the members of a given set. But there was no data point to link all the people in a group.

In the future, we can have a Custom Portfolio Field that says which group a person is in, and then we can build the Smart Set from that new field. This transition will take time because we’ve built a lot of static sets over the years.

For a growing firm, it’s prudent to invest the time into building Smart Sets and implementing Custom Portfolio Fields because you gain scale, improve accuracy and increase efficiency.

Looking Ahead: Implementation And Potential For Growth

For Foster Group, supplementing existing static sets in their database with Smart Sets is the way to go.  Rychnovsky knows that technology and the processes it enables will help Foster Group continue its rapid growth, efficiently and profitably.

SPT: Are you supplementing your existing static sets with Smart Sets or are you just replacing all of the static sets with Smart Sets as you go?

Rychnovsky: We’re supplementing. I think as Schwab Performance Technologies continues to enhance PortfolioCenter, there may be a day where we don’t need static sets any longer. However, for historical purposes there are sometimes reasons you would actually want a set to stay static, when you don’t want it to change dynamically based on data point changes. So there may always be a reason to have some of the static sets.

SPT: How do these new tools fit into the future of your business?

Rychnovsky: From my perspective, as we continue to grow, leveraging technology is the only way to do it. We could have kept heading down our other path, but when you consider efficiency and scale, it just wasn’t going to work.

Of course these tools aren’t driving our growth. But they are supporting it. In our business, we’re not going to grow just because we have a better technology. But to the extent that we can operate more efficiently, we will be able to operate more profitably.