A look at what rebalancing automation really means.
As a result of this confusion, we tend to have conversations like the following:
Q: How many staff would it take to rebalance a book of 100 accounts?
A: Two people (really one, but you need a backup).
Q: What about 1,000 accounts?
A: Two people.
Q: 10,000 accounts?
A: Two people.
Q: 100,000?
A: Two.
You get the idea. This gets people’s attention, but then, understandably, this leads to a bit of poking:
Q: Wait, what if the accounts are tax managed?
A: No difference. Tax management, including tax-sensitive transition, is automated.
Q: What if clients have custom asset allocations? Or custom product mixes?
A: No difference.
Q: What if there are social or religious screens? Lots of cash-out requests? Tactical asset allocation change? Model swaps?
A: No difference.
This really gets people’s attention. And the idea that “automated” means, well, automated, sinks in.1 And then the real conversation starts, about the implications of automated rebalancing. Which is where the conversation should be, not about the tech itself, but how it can help — even transform — your business.
These implications are big. You can manage every account as if it were your only account. You never hit capacity constraints. Even when markets become really volatile, like in the first half of 2022, you can stay on top of rebalancing. And perhaps more importantly, your client-facing advisors can dedicate themselves full time to speaking with clients. That, in the end, is the real meaning of automation.
1 All this being said, we should note that automated systems like ours are not infinitely scalable. Manual interventions are, in fact, sometimes needed. Not, as most people might guess, because customization or tax management is hard, but because we don’t live in a world of perfectly clean data. Bad data happens — your custodian might be a day late recording a corporate action, so your holdings data is wrong. Normally, this will correct itself by the next day, so it’s not a big problem. But occasionally, you might need to trade the account immediately, bad data or not, if, say, the client needs immediate cash for a house closing. This sort of thing is rare, but it happens. And it does take manual intervention. However, these are corner cases. For practical purposes, your scale is almost unlimited.
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