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Written by: Lisa Jacobs | intelliflo
Current market volatility has made effective trading and rebalancing especially critical. However, economic conditions have also made these tasks more difficult. Advisors are challenged to quickly monitor and make tactical decisions across hundreds or thousands of their clients’ investment portfolios in the face of swiftly changing market forces. A streamlined trading process can make all the difference in optimizing client outcomes and driving back-office efficiencies.
Below are three common trading mistakes and what can be done instead to maximize success.
Taking too long to trade.
Speed and precision are imperative as advisors adapt to both ongoing market volatility and evolving client needs. However, many RIAs lack the automated technology necessary to expedite trade times, still relying on cumbersome manual spreadsheets or juggling multiple systems, resulting in the swivel chair effect. Not only are these options time-consuming, but they also pose a higher risk of costly errors.
Instead, RIAs should look for sophisticated rebalancing and trading technology that has the flexibility to quickly respond to market movement and with automated workflows that save advisors and traders time, effort and risk of mistakes or delays. From trade approval and trade-aways to order sets and block trading and allocations, the right technology stack can help advisors transform entire trade lifecycles to streamline complex rebalancing and enhance execution, which becomes especially important in volatile markets.
Acting reactively instead of proactively.
The anxiety uncertain markets bring often prompt an increase in reactionary responses when it comes to trading and rebalancing. To avoid knee-jerk impulses, advisors must have easy access to relevant information, empowering them to make the most appropriate decisions based on knowledge – rather than fear – at scale.
To assume a proactive stance, more advisors are shifting investment strategies according to changing client preferences and performing large rebalances in timing with the market, which is crucial to be optimally prepared for what may be coming down the road. RIAs are leveraging strategies like tactical rebalancing, tax-loss harvesting and incremental portfolio adjustments.
As advisors continue to struggle with strained resources, technology has become an enabler of more sophisticated and diverse investment management approaches. Having advanced rebalancing and trading capabilities allows smoother execution of a range of strategies, from a “buy and hold” approach focused on coaching clients on how to weather the storm to a more aggressive stance that emphasizes timing the market at high trading volume.
Trying to outsmart the market.
RIAs are sometimes tempted to make decisions based on past knowledge and experiences instead of what current data and trends are demonstrating. This is where an effective use of model portfolios can help, improving scale, service differentiation, and customization. This provides the flexibility and control to handle different client scenarios around models, strategies, and exception management.
This is another instance where a firm’s technology stack plays a critical role. A rebalancing and trading platform should have the ability to bring in models and the agility to shift accurately and appropriately as conditions change. A flexible rebalancing and trading process, one that lets advisors apply changes to multiple positions in a model, a security model, an asset class within a model structure, or a specific portion of an asset class, makes mass portfolio modeling and customization at the account- or household-level a simpler and quicker process.
As market uncertainty peaks, the importance of enhancing operations like rebalancing and trading can’t be understated. Being aware of common pitfalls and leveraging processes, strategies and the right technology to overcome them can empower RIAs, family offices and investment managers to quickly adapt to change, customize at scale and do more for their clients – at a lower cost. Such benefits free them to spend more time on expanding relationships across generations and preparing for the next phase of growth.
Lisa Jacobs is vice president of customer management for intelliflo, a leading rebalancing and trading platform. intelliflo widens access to financial advice through leading technology powering the financial advisory experience.
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