Practice - Technology
Using Software to Handle Portfolio Management
by: Donald Jay Korn
Thursday, February 7, 2013
Partner Insights

Sheryl Rowling has CPA and PFS designations, an advisory firm in San Diego, and multiple mentions on various “top advisor” lists. So why did she decide to co-found a software business a few years ago?

“I didn’t see anything on the market sophisticated enough, with the functionality I wanted to meet my needs,” she says. “I was sure other advisors felt the same way.”

That was the genesis of Total Rebalance Expert, which is both the name of the company and the name of the rebalancing software solution aimed at RIAs who adhere to Modern Portfolio Theory. Rowling is CEO while co-founder Cheryll Lurtz, with a background in IT, is CIO. At the T3 conference, Rowling will have a session with advisors explaining how they use TRX, as the software is known, as well as a spot on a Day Three panel covering “What’s New in Rebalancing Software.”

When asked why she added TRX to her workload, Rowling recalls her time at the accounting firm Arthur Young (a predecessor of today’s Ernst & Young). “We used to do tax returns by hand,” she says, “and check the results against the computer. When there were discrepancies, we’d tell each other that the program was flawed, then look to see where the problems were. It would turn out that the program was right–preparing tax returns can be so complicated that you need to automate to take away human errors.”

Today, of course, anyone who hires a tax preparer expects to see a return generated by a computer. “I think the same thing will be true for financial advisors,” Rowling says. “Clients will expect that portfolio management, including rebalancing, will be done with a software program.”

As might be expected of a software program from a veteran CPA, tax-efficiency is a major consideration. When rebalancing, assets generally are sold from the best-performing asset classes, possibly generating taxable gains. “Our program calculates which lots should be sold, to minimize taxes,” Rowling says. “It tries to avoid triggering highly-taxed short-term capital gains and wash sales.” Harvesting losses is one way to hold down taxable gains but a wash sale–a quick repurchase of a relinquished asset–prevents taking capital losses right away. Beyond taxes, Rowling says that TRX can help to avoid redemption fees, which may occur when fund shares are sold soon after they’re bought.

 “Our program also can help advisors deal with clients’ multiple accounts,” Rowling says. “Where do I buy? Where do I sell? In an IRA or in a taxable account? Trying to do it all by hand can be very labor-intensive.” As more clients reach the point of drawing down their accounts in retirement, advisors may welcome software solutions that can make tapping portfolios less taxing.

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