Despite widespread availability, thousands of advisors still do not use an automated rebalancing solution. Whether due to issues of cost or complexity, many advisors continue to employ spreadsheets and to varying degrees manually process client accounts.
Technology provider Riskalyze announced Tuesday plans to temporarily remedy cost as a factor—though only for 2020 end-of-year rebalancing. Specifically, the firm is providing “no-cost access” to its full platform, including Trading and Riskalyze Elite and waiving all implementation and license fees, as well as a 12-month contract requirement, for two full weeks.
“I look at it this way, there are a bunch of advisors who have never leveraged rebalancing tech at all and still engage in this massive year-end process to rebalance client accounts,” said Aaron Klein, co-founder and CEO of Riskalyze.
Free trials are rare for rebalancing software, largely because of the time and guidance it takes to get an advisor set up, only to potentially walk away after the one-time, end-of-year portfolio adjustments. In other words, the advisor gets a free rebalance and the rebalancing firm receives no revenue for the upfront effort. Most require a minimum one-year license, Klein said.
While rare, Riskalyze is not the first firm to offer such a free trial, in fact AdvisorPeak provided a similar trial this year from April through June, following a period of market volatility induced by the pandemic.
The Riskalyze Trading platform scans an advisor’s client accounts on a nightly basis looking for risk number drift, allocation changes, tax-loss-harvesting opportunities and excess cash, among other things. An advisor chooses whether to approve suggested changes or not. And the Riskalyze technology is multicustodial with trade executions configurable for the Fidelity, LPL, Schwab (and TD Ameritrade), RBC and Pershing custodial platforms.
A pair of rebalancing experts, speaking on background and unaware of today’s announcement, said that firms coming off manual rebalancing processes are often the most time-consuming to onboard.
“A lot of the setup process entails going through the model setup, trade settings—including cash requirements, trading tolerances, location preferences,” he said. “Generally speaking this is the first time the firm has had to really nail down their trading preferences.”
Klein said that this is a difference between the Riskalyze offering and the legacy rebalancing offerings that rely on a models-based approach.
“A lot of the [models-based approach] is trying to shove round pegs into the square holes,” Klein said.
Riskalyze took a different approach in designing its trading and rebalancing process, he said; an advisor identifies a “tolerance”—or target range—for each account. If there are exceptions to be made when it comes to a particular holding, that position can be locked and the rest of the model traded around it, meaning the tool can support multiple models within an account.
“A firm could literally, once we finish our setup, rebalance 50 clients in two hours or less,” he said.
When asked about client data privacy concerns for firms that try the solution but decide it is not for them, Klein said they would be treated in the same way as any other that ends its use of the platform.
Putting a value on the rebalancing process is tricky, according to industry experts. Much depends on the complexity, sophistication, and capabilities of the software and the complexity of the firm's book of business. According to industry sources, implementation times for a cloud-based rebalancing provider can vary from 30 to 90 days on average, and training time has to be considered as part of the implementation process.
One expert, who did not want to be identified, estimated that for most all-in-one, broker/dealer and custodial platforms rebalancing implementations the costs would range from at least $5,000 to $10,000.
Klein, however, said he is not worried about eroding his own business with the one-time giveaway.
“I’m just betting that once advisors try the benefits of trading automation they will be hooked. And if we end up giving away hundreds of thousands [of dollars] in setup and implementation time during this then so be it,” Klein said.
“It’s not a gift if there are strings attached,” he said.
Riskalyze will be initiating free platform activations through December 31, 2020.