The Best of Both Worlds: Portfolio Rebalancing + Best Execution = Blaze Portfolio
“Innovation distinguishes between a leader and a follower.”
— Steve Jobs
For the past year and a half, I have been meeting with vendors of portfolio rebalancing software, seeing demos of their products and writing a series of articles about my findings. All of the applications were very good and provided a long list of features and functionality, but none of them jumped out at me as offering an innovative solution that could take the industry in a different direction.
That is, until now.
I recently was given a demo of ATOM ALIGN by Bryson Pouw, the founder and president of Blaze Portfolio. Their portfolio rebalancing solution is targeted squarely at the RIA market and specifically at advisors who not only make their own investment decisions, but have an understanding of order management and the value of controlling their trade execution. Blaze Portfolio is also making the product attractive to fledgling Turnkey Asset Management Providers (TAMP’s) by opening up their technology to facilitate integration into third party systems.
The Main Differentiator = Integrated Order Management
ATOM ALIGN is a stand-alone rebalancing solution that offers all the basic functionality that a Rep-as-PM advisor would need to manage models, receive updates from third party managers, and rebalance their accounts, individually or in groups.
But what sets this product apart is its block trading, allocation and order management features. I had previously only seen these features organically available in enterprise-level advisory platforms or trade-heavy systems such as Charles River or Eze Castle.
After running a rebalance session and generating orders, most rebalancers require the advisor to export the orders to a flat file and then import them to the custodian for execution. The fills come back later and the process is reversed. This is time consuming and does not provide any control over the execution.
Advisors using ATOM ALIGN will have a some serious power at their fingertips. A single click on the Execute button can automatically route orders to multiple trading desks based on preselected algorithms. The fills come back in milliseconds via FIX connectivity setup by Blaze Portfolio to most major trading venues, Pouw stated.
Pouw provided an example of an RIA that custodies at TD Ameritrade Institutional can use a custom algorithm that routes their orders through TD to Knight Capital in order to get the best execution for specific securities. The execution venue can be defined based on security type, volatility, number shares, or other workflows, he said.
Of course, this functionality is not unique. iRebal users have straight through processing, but only for accounts custodied and traded through TD Ameritrade. MyVest also has a trade blotter feature in their pipeline that is supposed allow creation of block orders from the rebalancer and routing to different destinations. (See Is MyVest the Right Portfolio Rebalancing Software for You? and also TD Ameritrade Comes Out Swinging with iRebal Update)
However, Blaze Portfolio’s functionality is available now and can provide the same automated order delivery across multiple custodians, which is a powerful advantage for RIA’s that do not keep all their assets in one place.
Along with powerful order management features, ATOM ALIGN also automates that allocation of block trades. All trades will appear in the correct accounts, which avoids having to log on to your custodian’s website. The software can enforce consistent execution wherever you are trading and then can compare the execution prices across different custodians, Pouw informed me.
A Model of Efficiency
The Model View screen has a column for trading signals, which is another feature unique to ATOM ALIGN. Data from an external research provider (such as Morningstar) can be imported in order to drive the trading signals, Pouw explained. Selecting the tactical rebalance option will use these signals for generating orders.
When viewing models, an advisor can preview the effects of proposed trades before they are sent out and make adjustments, if necessary. A handy feature is the ability to create a new model on-the-fly based on the holdings of an existing account. This sounds simple, but it is a feature that can save an advisor a lot of time and avoid having to break his workflow by switching to another screen. (See Going Under the Hood of Models-Only Programs)
Once a model is assigned to multiple accounts, all of these accounts can be rebalanced with the click of a button.
Real-Time Interfaces Mean No Waiting
Advisors have extensive flexibility when handling orders in ATOM ALIGN. They can manually work orders for larger client or send partial orders. The rebalancer also receives intraday positions, so any trades that are filled are immediately taken into account. Other systems that require an overnight batch feed are at a significant disadvantage when compared to Blaze Portfolio’s platform. Having to wait until the next day to rebalance can have a negative impact on performance, especially in volatile markets, Pouw pointed out.
Real-World Benefits Mean Increased Scalability
Pouw described one of their clients, a San Francisco-based advisory firm that uses mostly ETF strategies, that was looking for scalable model management and electronic trading across multiple custodians. They wanted consistent execution to avoid clients getting different prices for similar trades and also improvements in their scalability to support new business.
Since switching to Blaze Portfolio, Pouw described, the firm has grown from $400 mm to $600 mm in AUM without adding additional staff. They get better executions using the mix of algorithms available to them through ATOM ALIGN and can coordinate with Schwab and TD to improve their results.
The time it takes them to run a trade from the initial idea to execution was reduced by 90%, from a few hours down to just a few minutes. This increased their capacity to support smaller clients, which enabled them to expand down market by reducing their account minimums, he noted.
Real-Time Market Data Means More Accurate Rebalancing
Not every rebalancing product uses the real-time market data when evaluating positions. ATOM ALIGN does, although they also offer delayed quotes for firms that do not need the very latest data. But even delayed quotes are head and shoulder above using last night’s closing prices, which some products still insist on. Maybe if you only rebalance a few times a year, then there is not that much difference between the price from last night and the price from a few seconds ago. I doubt that firms that are are infrequent traders will not see the value in using Blaze Portfolio’s platform anyway.
External Integration is Key
The concept behind ATOM ALIGN began in mid-2009 with a TAMP who asked Pouw to help them develop a custom modeling and trading solution that would sit on top of Advent’s portfolio accounting engine. They tried Moxy, but it did not have the flexibility needed to model support hierarchical modeling. Pouw completed the project and decided that the system was good enough to sell to other firms.
Since ATOM ALIGN is not an end-to-end advisory solution, Pouw realized that they must design the architecture to support extensive integration with third party systems. They can automate groups of accounts based on their accounting system or restriction lists and can drive rebalance sessions from external interfaces, he stated.
The system can pull restrictions data from a CRM or portfolio accounting system and feed them into the rebalancer. This avoids clients having to enter information multiple times and reduces data entry errors.
Schwab Portfolio Center, Morningstar = XML, SunGard Charlotte, direct custodian = files via FTP, they try to automate these things, avoid clients having to download files, make it ready for them in AM, market data integration = 15 min delay or r/t
FIX – trade, allocate, settlement – trading away and settle trades somewhere else, can do this through FIX, Blaze has a FIX engine, 500 executing brokers, direct
Through their connectivity to Sungard Global Network, an order routing network for equities, fixed income and options, ATOM ALIGN clients have access to 130+ markets worldwide, connecting to over 2,000 asset managers and 500 brokers through 30 international hubs.
Support for Long\Short Strategies
One question that I ask every rebalancing vendor is if they support equity long\short strategies. This is an investing strategy, often used by hedge funds but also by some RIA’s, that combines long and short positions to try to and profit from the spread between performance of different stocks.
None of the rebalancing applications I have reviewed to date can handle these strategies, except for ATOM Align, which has full support for margin trading and short positions. While they do not support specific long\short models, users can trade short in equities and ETFs, Pouw noted.
How much does your product cost?
A base-level installation of ATOM ALIGN costs between $12,000 and $15,000 annually, before discounts, Pouw informed me. This includes all of the rebalancing and order management functionality. However, there is an additional annual charge of between $4,000 and $10,000 for the electronic trading module, which is required if you want to access the trading algorithms. The price varies based on the number of connections to brokers and trading venues.
The cost increases based on AUM as well as the number of accounts for larger RIA firms or TAMP’s that are using Blaze Portfolio technology to run their outsourcing business.
They currently have around 40 clients, Pouw reported, with the average client AUM being around $400-500mm. They also handle about $150 million per month in electronic trading volume, he calculated.
What is the average implementation time for your product?
It typically requires only about a week to setup a new instance of ATOM ALIGN and connect to the client’s portfolio accounting system, Pouw insisted. However, extensive training is required for advisors to ensure they understand the many features and options available. This usually takes an additional 4-6 weeks, he stated.
Who are your biggest competitors?
When selling to RIA firms, they often go up against Envestnet | Tamarac and Advent MOXY, Pouw professed. In the TAMP market or mid-size broker-dealers that are looking for technology to enhance their in-house platform, they usually see Envestnet and FolioDynamix, he stated.
I asked Pouw about new features that are in the works over the next 6-12 months. He revealed his plans to add features to the ATOM ALIGN dashboard including better account drill down and expanded user management and permissioning for larger firms.
They have aggressive growth plans for 2015 and have a target of doubling their client base, Pouw admitted. He hopes to offer integration with a major CRM vendor that will allow restrictions to be set from inside a client’s contact record. They also are experimenting with smart account groups that will dynamically add and remove accounts based on predefined characteristics.
Portfolio Rebalancing + Best Execution
As a consultant who has been in financial services for 20+ years and investment advisory for almost half of that, I have designed portfolio rebalancing software, implemented it and spent countless hours interviewing vendors and evaluating their products against one another. Blaze Portfolio’s ATOM ALIGN is an innovative solution that combines two critical portfolio management features that have been crying out for better integration. I would recommend that advisors and RIA firms that believe their investment management skills are a big part of their value-added should take a look at Blaze Portfolio.