Comparison of Money Management Systems for Financial Advisors
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Unlike most all other investment software, all three of ours are turnkey systems, which allows you to actually manage money without having to use or buy or use any other investment software / database / system / or services.
What a turnkey system means is that all you have to do is insert the key (buy it), then turn the crank (read the directions), and the black box spits out the finished product all ready to use in the Real World (actual investment portfolios ready to be bought with ticker symbols).
These three systems are the comprehensive asset allocation software, which includes with the asset distribution software, and the Model Portfolios.
The portfolio models and comprehensive asset allocation software are two different programs with different pricing tables. The Asset Distribution Tools aren't relevant to this page, and are just "freebie add-ons."
Also a unique service is creating custom portfolio benchmarks to see how other money management strategies are really working.
Brief Summary of the Model Portfolios
Asset allocator models are the oldest, most-common, quickest, most inexpensive, and easiest way to do a good job of managing money for "smaller accounts" (under $250,000 for example).
They usually don't generate enough revenue to make it practical to spend a lot of time doing "real work," so model allocations are the best way to not do hardly any work, yet still achieve desired results.
You'd just use an investment fact finder to determine investment risk tolerance, and then allocate using the appropriate investor model with the mutual fund picks (or ETF / Index fund picks or use your own investment picks).
In other words, you'd make buy trades with either existing cash, or money freed up by selling old investments.
It comes with step-by-step directions and exact recommendations of what to buy via mutual fund tickers, and how much of each.
Brief Summary of the Comprehensive Asset Allocation Software
Our comprehensive asset allocation software excels in matching investment portfolios to the lives of your clients.
You can forget about all of the cumbersome limitations with other asset allocation software. Get better results for a fraction of the price, while being able to accommodate almost any client situation, investment strategy, or way of doing business.
If not, then with basic Excel knowledge, you can modify the program to account for just about any oddball thing that may come up.
Why Most Professional Money Managers and Financial Planners Use Portfolio Models
• After creating them, advisors can usually do everything themselves for free, and without having to use other software tools.
• Although there is a lot of work involved in setting them up (which we have already done), it takes very little work when it comes to implementing them for clients in the Real World (presenting / selling them, tracking, compliance paperwork, analysis, making trades, rebalancing, and keeping them updated).
You'd just buy investments in the proportions given in the model allocation. For example, if a client gave you $100,000 of new money, and scored Moderate risk tolerance, then you'd just buy $15,000 of the large-cap growth fund pick.
The combination of being easy to sell, simplicity, low risk / turnover / trading / maintenance, easy to keep in compliance, and great returns are very attractive. This is especially so for younger financial planners without the big education in investment management, nor the decades of experience in developing their own investment management strategies.
All of this time saved on not having to reinvent the investing wheel can be put to better use building infrastructure, drumming up new business, and maintaining client relationships.
• These model allocations work for all methods of doing business: We have Fee-Based (where mutual fund front-end loads are waived), no-load mutual funds / Index funds / ETFs / and all front-end loaded mutual fund models.
• Compared to other investing strategies, they're very easy for you and your clients to understand. It works well if you like the KISS philosophy (Keep It Simple Stupid!).
• They're easy to get Broker Dealer compliance / Finra / SEC approval, compared to other investment strategies. This is because they're used to seeing them, because everyone else has been doing something similar since the beginning of time. The approval process will say you'll need to show clients both the investing models along with this Word document that explains the investing models to clients, and it will probably approve fine. If it doesn't then just let us know what they say they need, and it will be added.
• Models are something investors want and need, so it's easy to get prospects to say yes and become clients, with minimal objections. After determining someone's risk category, you'd just print one of the model pages and present just that one page. This way, they'll never see the others. This minimizes having to spend time on questions like, "Why do you want to put me in a loaded moderately conservative model and not the no-load conservative model?" If they do ask to see the others, and/or the Index Model to compare returns, then you can pull out only what they asked for.
• You can track investment returns that match what actual investors hold to a reasonable degree (as well as possible unless you want to spend ~$5,000 annually on portfolio management software or pay up for this service).
For example, if you spend a few minutes a day maintaining the returns, then if a client calls and wants to know ballpark how the portfolio is doing, you can just pull out their model allocation and give them the answer in seconds. It won't be exact, but it will be in the ballpark. Any other way, like using PMS, calling the BD, custodian, or looking it up online, would take at least a few minutes to get a more accurate number.
• It only takes a few minutes a day to update investing models with fresh mutual fund returns from a newspaper or online source, so it's practical. Then it would only take a few minutes to update your website with daily returns.
Having a fresh allocation model on advisers' desks when they come in to work is a great motivational tool to get on the phone and drum up new business. Hounding the same elusive prospect is much easier when you can tell them you beat the markets, and their current manager. We've seen over $25 million moved by using this simple technique alone.
• When advisors present them, it's easier to remember the details on only five investment portfolios. The best salespeople we've seen are old, fluffy, computer illiterate, seasoned "people people" that can barely remember their employees' names. But after they get their sales scripts down when it comes to presenting models, they can open up ten times more new accounts than anyone else. They just want something simple that works, and they can remember how to KISS (Keep It Simple Stupid!).
• Investor models are a lot less work when you manage money for hundreds of clients (especially from a compliance point of view). When it comes time to switch a mutual fund, or rebalance, most trading software can accommodate large numbers of essentially the same trade. When you have hundreds of clients, you can usually get rid of all of the same mutual fund, and then turn around and use the sale proceeds to buy the same new fund, all with relatively few mouse clicks, and only in a few minutes.
This is also helpful for advisors that have compliance watching their every move, because when they see hundreds of trades in one day, it only takes one call to figure out what you're doing. After seeing the same thing a few times, they'll eventually stop bothering you. When they want to know why you're switching mutual funds, just say you're using our service. When they read about it, they'll probably leave you alone (assuming you got it approved).
• Asset allocation models are quick and easy to rebalance portfolios. Just input the actual current holdings into the Comparison Models sheet and it automatically compares it, then tells how much it's off by, so you can make trades to bring it back into balance.
• Advisors can input annual investment management fees charged to clients into the Fee-Based Model Linked Returns spreadsheet, and it recalculates historical performance (accounting for past trades). You can also input your fees into the hypothetical Model Portfolios.
• You don't need a Finra Series 7 securities license to manage money using these asset allocation models on a commission basis. A Series 6 is all that's required because it just uses mutual funds.
• You can just pay a small amount once (or annually), then you'll have all of the tools to do your jobs. Competing vendors sometimes charge you a percent of assets, make you use their mutual funds, or have other ways of charging more money over time. For example, if you use a third-party money manager, and they charge 50bps, then for every million you have with them, you're giving up $50,000 a year of gross income. Our investing system allows you to keep all of your money, while most likely realizing better returns with less risk.
The best way to compare the asset allocation models with other vendors is to read the section below, as it would just be duplicated here.
Why Our Comprehensive Asset Allocation Software is Superior Compared to the Competition
Unlike the asset allocation models, which are a unique money tools that you can't get anywhere else, most all comprehensive asset allocation software sort of performs all of the same basic functions. So that's why there's little-to-nothing in this section.
Over time, we'll be comparing each vendor one at a time below.
The following tells about the major functionality differences:
We make investment suggestions via both the custom-calculated asset class mixes and the monthly-updated mutual fund picks.
Other than having a database of historic asset returns, an automatic way to download online investment account data into the program (to self-input the current portfolio), talking to CRM software, making trades, and a having a built-in portfolio optimizer; this investment software does everything, and more, compared to other vendors. To buy these missing functions requires spending $500 to $5,000 more annually.
To see the usual array of portfolio statistics (beta, Treynor, Sharpe, etc.), you'd need to buy investment software with a very large database of monthly historical asset returns. Usually only large vendors like Morningstar, or ones that sell asset-level portfolio optimizers, have this.
Our asset allocation calculator has a very scaled-down way to calculate most of these numbers, but there's a very important reason why we chose not to do a full-blown programming endeavor in this area (re-invent the portfolio optimizer):
The bottom-line is that not one of these things (sigma, beta, Jenson, Treynor, Sharpe, etc.) have any predictive value whatsoever.
It's interesting to see what these stats have been in the past on whole portfolios, and/or on individual assets, but NONE of them have any consistency at all. If they "flop around wildly all the time at random," then they are TOTALLY USELESS in making any future predictions.
If they did have any predictive value, even just a little bit, then we'd have been using them over a decade ago.
Yes, this means that all work done "backtesting" is most futile. You can spend hundreds of hours creating the most efficient portfolio humanity has ever seen, then as soon as you implement it in the Real World, it's almost guaranteed to greatly disappoint everyone.
But on the other hand, there's little-to-nothing else that can be done here but backtesting.
While I was taking the CFA courses, I made a big fuss about each one of these stats via actual client portfolios in the Real World, using both Morningstar and the best asset-level portfolio optimizer.
The results: not one stat added any value to the process whatsoever - NOT ONE, not even beta! So since none of that works to help out on anything, we just don't go there.
But we did make the one sheet on the asset allocation software for people that are interested in these portfolio statistics, as a "freebie add-on."
The main reason we did that (even though they're all useless in predicting future performance) is because publishing the Fee-Based Moderate Model's alpha number on the model demo help prove how well we usually outperform, and also settles the ageless debate, once and for all, that active investment management can consistently beat passive management, after trading expenses.
This is going to be a WIP for a while. Sorry, but other more profitable projects keep coming up.
More Marketing Blurbs
Look at the historical track records of the investing models, the return graphs on the demo, and the main asset allocation page and compare. They are most likely much better than what you, or your competition, have been getting.
Clients tend to let you manage their money when you can show them you actually have a sound plan for doing so that makes sense - and will deliver good returns with low risk.
Being able to present prospects with something they agree with is not only what makes sales, but will also get results they expect. This will keep them with you as happy paying clients years after the first portfolio is implemented.
When presenting them correctly, both systems have a very high closing ratio (over 80% if we do it), because it's easy to show what you would do with their money going forward just by following the presentation directions.
Most of the time, they say to make it so as soon as they see you have a system using more than a few asset classes, the returns are good compared to the markets, there's a healthy amount of bonds, you're recommending small amounts of risky asset classes, you're not trading stocks / ETFs, not trying to predict the future, and you're using mutual funds in a mostly "buy and hold" fashion.
Even though these allocation tools eliminates the need for you to waste time and money on stock picking (security selection) and market timing, it still has to be done by someone.
That's the mutual fund managers' jobs. They have the armies of analysts and millions invested in computer hardware and software needed to perform these mostly futile tasks. You don't, and that's the point. If you want to compete with them, then you're just going to lose most of the time.
Even if you do occasionally get lucky with superior returns, you've lost tons of money because the time it took could have been better spent drumming up new business.
Using asset allocation with mutual funds is just about the only way to win these days. Winning means keeping your clients happy by realizing low risk and great returns, slowly growing assets under management, while at the same time, not wasting / losing time and money trying to manage money.
You don't have to sell everything or anything in their current portfolio to obtain the correct mix with either program. For example, if they already own 20% of a large-cap growth fund that's doing fine, and they scored Moderate, then you'd only need to sell 5% of it, because the recommendation is 15%.
Actually, you could leave it the way it is, because you can do anything you want. You could just let them be overweighted, change the allocation weights, or let 5% spill into the Mid-cap asset class by saying it holds some mid-cap growth stocks (because they usually do).
We keep getting the same questions about our unusual investment performance, so here's an old client e-mail paste that may help:
Yes on one hand, the investment performance is remarkable. On the other hand it shouldn't be, because it's exactly what the CFA program teaches. I'm apparently the only CFA Charterholder that practices exactly what's taught. Everyone else went off to get rich being a hedge fund manager or creating derivatives like CDSs that started the '08 financial crisis.
What the CFA program teaches in a nutshell is this: Advisors should not be market timing at all, period. Nobody can predict the future, so this is worse than futile. Trading ETFs is just the current market timing fad.
Advisors should also not be trying to pick stocks, unless they have quasi-insider information, like they work for the company, used to work there, or know someone working there that's not technically an insider that's feeding them accurate and timely information. The only "people" that have enough information, resources, and data to profit by picking stocks (and/or time markets) are large institutions like mutual funds.
So once that battle is understood and won, and since there are only three ways to make investment decisions, and the most popular two are taught to be no-no's by the CFA program, there's only one methodology left - asset allocation. So I took that to mean this is what I should become an expert on.
What you're supposed to do is determine a mix of viable asset classes that fits an individual investor's life, and then either fund it with something very diversified like mutual funds, ETFs, or index funds (the CFA program likes index funds, as most advisers can't even pick open-ended mutual funds, or ETFs, well enough to beat an index fund).
So the questions then become, how do you determine what asset classes to use and how much?
Well, I did it in both the Comprehensive Asset Allocation software and the Model Portfolios using the best asset-level portfolio optimizer, educated guesses, and way too much trial and error. After doing it thousands of times, I found what works and am sticking with it.
I've looked at everyone else's harebrained investment strategies since the mid-'80s, and found none to be better. I've tried many ideas from many advisers (mostly from dozens of job interviews), and so I've tinkered with just about everything everyone else has come up with since '88 with actual client monies. The ideas that worked, I keep, and the ones that don't, I criticize.
Once that battle is over, the war is reduced to just deciding what to fund the asset classes with. To make a very long story short: Stocks - no, no diversification compared to a mutual fund that may own 100 stocks. Closed-end funds, no - there's no way to screen them to get any predictive value whatsoever because of the large and random premiums and discounts due to thin trading. ETFs, no they're mostly just lame index funds... with similar internal fees as non-index mutual funds (12b-1 fees are replaced by commissions to pay when you both buy and sell them - plus my mutual fund picks also cream ETFs). ETFs are basically a reboot of closed-end funds. Index funds, maybe, but the way I pick open-ended mutual funds creams index funds by way too large of a margin about 90% of the time.
So all of these questions are answered, war over: The way I allocate asset classes and then screen mutual funds adds plenty of value to the investment process, so I'm sticking with it to the bitter end.
The magic isn't all in the infrastructure (the allocation software), it has a lot to do with finding predictive value in the mutual fund picks. I look at many things, like historical performance, and try to predict what will keep up doing what it's been doing long enough to be useful.
After thousands of trials and errors, I found a way to pick mutual funds that have a one- to two-year predictive value.
All mutual funds crap out eventually and have to be replaced, which is why it's critical to keep the subscription going and rebalance. When I say crapped out, I don't mean it in a smelly sense, but the casino gambling way.
It doesn't always work (read about that on the disadvantages of asset allocation section of this page), but the winning picks beat the duds enough to add plenty of long-term value.
Plus every month I learn something new, so the screening process is continually refined and saved, so it gets better all the time.
If the About how I pick mutual funds is not on the mutual fund recommendations page already, then it's a "trade secret."
There are no secrets about the allocator software or models, just the opposite, every detail is explained.
Also when you buy the models, not much is protected, so you can see exactly what's going on.
Plus you'll get the same spreadsheet I use to calculate returns to account for fund switches, fees, and rebalancings since 1/1/99 or 1/1/03. So you can audit the returns and figure everything out.
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