RIA Compliance and Practice Management Blog

A Guide to Portfolio Management and Reporting Software for RIA Firms

Posted by RIA in a Box

Jan 6, 2015 10:04:08 AM

As a follow up to our recently released Guide to RIA CRM Software for Investment Adviser Firms, we wanted to provide some similar guidance as it relates to portfolio management and reporting (PMR) software systems for registered investment adviser (RIA) firms.  Thus, using data from our 2014 RIA Systems and Operations Survey along with other industry observations, we wanted to provide some detail thoughts on what to consider when selecting a PMR software tool for your advisory firm.

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According to our recent survey, approximately 47% of emerging ($50 million or less in assets under management) RIA firms utilize a portfolio management and reporting system compared to approximately 80% of established ($50 million or more in assets under management) firms. The fact that over half of emerging-size investment advisory firms are not utilizing a PMR system may sound a bit surprising at first, but when the traditional cost of these systems is considered it seems that budget considerations force many smaller firms to make due without a PMR solution.

Historically, we generally find that once an RIA firms reaches around $30-40 million in assets under management (AUM), the firm begins to seriously consider purchasing a PMR system. However, we are beginning to see more smaller RIA firms with less than $30 million in AUM begin to adopt reporting systems as there are some new entrants to the PMR landscape offering more affordable solutions.

The Key Components of a Portfolio Management & Reporting System

To better understand PMR systems, we like to break-down the key features of a PMR solution into these categories:

  1. Client reporting: The capabilities of a system may widely vary from the most basic position / pie chart report that includes no performance information to the ability to completely customize 20-30 page reports with detailed time and dollar-weighted historical performance history compared against an assortment of benchmarks. In addition, some systems offer an online client portal.
  2. Portfolio management: Some systems have built-in trade rebalancer tools with the ability to directly upload trades to a custodian platform while others may at most allow an adviser to view the client current's portfolio against the targeted asset allocation.
  3. Account reconciliation: Some systems include the reconciliation of all accounts to ensure that all accounts in the system are properly reconciled to allow for performance calculations. Other systems place this responsibility on the advisory firm.
  4. Billing automation: More advanced PMR systems allow an advisory firm to fully automate billing with an array of tailored fee schedules while calculating the fee utilizing the a client portfolio's average daily balance. 
  5. Outside account aggregation: Some systems, often leveraging a third-party solution such as ByAllAccounts or Quovo, have the ability to automatically feed outside, non-traditional RIA custodian account information into the system. The most advanced systems will even reconcile this outside account information allowing for fully aggregated performance reporting.

An RIA Reporting System Evolution

Traditional reporting software providers have geared their services towards the complex needs of very large wealth management offices and their sophisticated clients. These traditional solutions, however, have generally required a large up-front investment as well as technically savvy employees capable of managing both the software and the local servers on which the software runs. In recent years, cloud-based solutions have offered advisers modern, professional-grade performance reporting without the set-up expenses and technical burden of incumbent reporting systems. 

While not without flaws, modern reporting systems offer advisers a compelling upgrade over traditional solutions to the problem of presenting clients’ investment performance clearly and accurately. Increased competition in the space has spurred consistent innovation on the part of reporting systems vendors, pushing them to offer increased value in the form of 3rd party integrations (such as integrations with custodian trading platforms) and feature upgrades at more attractive prices.

At the same time, we are also observing an RIA industry trend in which simple, accessible reporting is what clients are now demanding. The days of 50 page paper reports for clients are quickly being replaced by slick online client portals in which clients can access portfolio information 24/7. Client preferences are also driving some RIA firms to complement or replace advanced performance reporting with client balance sheets. In particular, many small business owners and entrepreneurs that advisory firms target as clients are accustomed to business financial reporting. For such clients, often a balance sheet can be much easier to comprehend than a table filled with time-weighted performance figures.

The Systems to Choose From

For emerging-size ($50 million or less in AUM) RIA firms, some of the most popular PMR systems include:

  1. Morningstar Office: Reporting is one of the features of Morningstar's platform. It has achieved wide adoption over the years. Morningstar is presently working on transitioning the system to be fully cloud-based. Account reconciliation is generally handled by the advisory firm unless an additional add-on service is purchased.
  2. Schwab PortfolioCenter: Available as a cloud or desktop solution, PortfolioCenter is also one of the most established legacy players in the PMR space serving thousands of firms. Similar to Morningstar Office, account reconciliation is generally handled by the advisory firm unless an additional add-on service is purchased.
  3. BlueleafThe newest cloud-based entrant to the space that has started to reach a critical mass. The system does not offer advanced performance reporting but it makes up for it with a slick client portal and built-in account aggregation. It also has one of the most affordable and transparent pricing models with pricing start at $195 per month for advisors with less than $10 million in AUM.
  4. AssetBookLed by an experienced team, pricing starts at $40/account/year with an $8,000 annual minimum charge for this cloud-based system. It's also one of the only vendors at this price point that includes account reconciliation.

So how do smaller firms do client reporting if they aren't utilizing a PMR system? In general, those firms tend to use a combination of Microsoft Excel and the basic tools being offered by the custodian(s) they work with.

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When it comes to more established (more than $50 million in AUM) RIA firms, some of the top PMR systems include:

  1. Orion: A cloud-based solution that continues to grow in popularity for larger firms. Orion has established a very innovative reputation in the industry by frequently rolling out new features and integrations with other systems including a very strong integration with Salesforce CRM. They serve over 500 firms with an average AUM per firm of around $325 million. (Special note: On June 20, 2016, RIA in a Box released a new investment adviser compliance software integration with Orion.)
  2. Advent Black DiamondAcquired by Advent a few years back, cloud-based Black Diamond continues to grow in adoption at a rapid pace as well. It is considered one of the elite, new-breed solutions. Black Diamond serves over 480 firms with an average AUM per firm of around $375 million.
  3. Envestnet Tamarac: A popular platform for larger advisory firms that includes a reporting component bundled with rebalancing, CRM, and other tools. It serves over 650 firms with an average AUM per firm of just under $500 million.
  4. Pershing AlbridgeOne of the legacy players in the space that has a strong broker-dealer user base.
  5. Addepar: Still very new to the scene, this venture-backed firm has raised over $65 million to date and is gaining traction with some large RIA firms that cater to the ultra high-net worth segment. It's cloud-based system is priced at a premium but it's ability to report on aggregated and non-traditional assets is top-notch.

It should also be noted that a number of the solutions listed for smaller RIA firms also cater to more established firms. According to our survey, both Morningstar Office and Schwab PortfolioCenter work with a sizable number of larger advisory firms as well.

Investment News also conducts an annual RIA technology survey. In 2013, according to Investment News, among firms utilizing PMR systems, the top 5 most popular providers were:

  1. Schwab PortfolioCenter (20.0%)
  2. Broker-dealer platform (18.4%)
  3. Pershing Albridge (16.5%)
  4. Morningstar Office (11.9%)
  5. Morningstar CAMS (5.5%)

As RIA compliance consultants, we are happy to further discuss how to utilize your firm's portfolio management and reporting system as a component of your RIA firm's compliance management solution. In our observations, investment advisers that successfully implement a PMR system tend to be much more efficient and organized as it relates to compliance reporting. 

Lexington Compliance and RIA in a Box LLC are not law firms, investment advisory firms, or CPA firms. Lexington Compliance and RIA in a Box LLC do not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

Topics: RIA Operations, RIA Compliance, RIA Technology

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