Have you ever done something small that you thought was inconsequential, but actually surprised you with its enduring value? In this column, I'll discuss two such experiences at our firm, one integrating a specific technology that saved us money in unexpected ways, and the other participating in a charitable program and learning to better manage our firm as a result.

What Rebal?

First, some background. Our typical portfolio used to have nine no-load mutual fund categories, plus cash. Due to our investment philosophy of using low-cost passive funds, we did very little trading outside of rebalancing or end-of-year tax-motivated trading. We were able to manage our portfolios by hand for years using Centerpiece/Portfolio Center. But this wasn't scalable.

Why is that? Early on, the financial planner (that would be me) decided what to include in each portfolio. Even after we developed an investment committee approach, the relationship manager still had most of the responsibility for portfolio design and management, including determining equity/fixed-income mix, rebalancing, tax trading and generating cash.

That's a great model if you have a dedicated portfolio manager on your team. Over time, however, as you develop multiple planning teams, and the number and complexity of clients grow, it becomes inefficient. In that organizational configuration, the relationship manager's primary job is to manage the relationship, not to do technical trading.

Client growth will force changes upon you, as it did with us. You'll have to decide whether to place a portfolio specialist on each team—expending a large amount of time and money—or centralize the portfolio management function by leveraging technology as much as possible.

When we tried the first option, our problem was staffing. Every CFP or CFP-in-training we talked with wanted to be a planner (read: sexy and glamorous). Hardly anyone wanted to be a portfolio specialist (read: technical and nerdy). When CFPs/CFPs-in-training served as portfolio specialists for one to two years as part of their career path, the organizational issues were significant. We found most CFPs weren't the right folks to fill those slots. (I'd be interested to hear from anyone with a different experience.)

While I was scratching my head about what to do, several of my colleagues at the Zero Alpha Group (ZAG) started to explore different portfolio management platforms jointly with the idea of centralizing and strengthening their portfolio management. Because I didn't have a way to make our "portfolio-specialist-on-the-planning-team" model work efficiently, I decided to change our approach and centralize portfolio management. I would go along with the ZAG analysis and findings.

The winning software was iRebal. Two ZAG firms already used the program, so the remaining six domestic firms purchased iRebal and scheduled implementation. At the time of analysis, ZAG firms' AUM ranged from $300 million to $1.6 billion.

You might be thinking, "I'm much smaller than those firms. Why should I consider iRebal or some other portfolio trading system?" My recommendation is to look carefully at your growth. Picture your future organization. Unless you have a boatload of technical trading specialists on staff now, think centralization and specialization.

As you might guess, iRebal is extremely flexible with regard to number of accounts and investments in each account. This solved our two aforementioned problems: scalability and career-path issues. The planning teams still communicate client needs to the investment management team, but they do no trading and very little portfolio management.

We've all heard the horror stories: "We were installing new software and the whole thing went blank!" Fortunately, we did not have that experience. Because the iRebal folks worked hard to get the system configured, it was up and running quickly while we also continued to use our old Portfolio Center system. We ran both systems in parallel for a time, before we switched over.

After a number of months, we now know some of the limitations and peculiarities of iRebal, and we are developing work-arounds. In mid-2008, our investment committee added two new investment categories, and is considering several more. We now have about 12 investment categories. This has given us the opportunity to see iRebal handle just about every kind of trade we've ever done.

Here's a key data point: In 2007, we handled about 3,500 trades, involving six people full- or part-time. In 2008, given the tremendous market volatility and new investment categories, we expect to have done 8,000 trades with two full-time people plus nominal involvement by three client relationship managers. That trading level is likely to continue during 2009, so we are evaluating our custodial relationship and pricing. What about savings? One full-time professional at $80,000, plus about $40,000 in additional professional time, so far. Need to save money in 2009? This is one sure way to do it.