The Complete Guide To Portfolio Management Software For Financial Advisors
4 Things to Know About Portfolio Management Software
When planning the technology stack for your financial advisory firm, where do you begin?
A broker-dealer may choose to prioritize the CRM experience as a way to keep their thousands of advisors in sync with internal processes, while an RIA who is committed to offering custom investment strategies may first look to build around a portfolio managment and analytics platform.
The hub of a tech stack can vary for different firms. But no matter what type of firm you operate, portfolio management software is a key part of the equation.
In the complete guide to portfolio management software for financial advisors, you’ll learn why you need this important piece of technology and understand how it impacts the daily success of your firm.
What is Portfolio Management Software?
- Create investment portfolios
- Raise and invest cash
- Analyze portfolios: align its risk tolerance with a client’s investment goals
- Rebalance and trade portfolios
- Proactively manage compliance needs
- Deliver reports to compliance about investment performance
- Generate invoices and collect fees from clients
- Perform additional, system-specific functions based on various software providers
While these are some of the core ways a firm can use a portfolio management system, it’s not an exhaustive list.
Financial technology companies can create either closed systems – which either don’t integrate at all with other vendors or don’t do it easily – or they can build future-ready systems with an open API-based architecture.
When it comes to API-driven fintech solutions, portfolio management software often becomes the central hub in many advisory firms’ tech stacks. And that’s because it’s so flexible and does so many different things in an advisory firm.
THERE ARE FIVE KEY REASONS WHY FIRMS NEED TO INVEST IN PORTFOLIO MANAGEMENT SYSTEMS WITH AN OPEN API.
Flexibility
Open APIs allow for integration with a wide range of top vendors and partners, providing greater flexibility and customization options across technology solutions.
INNOVATION
An open API technology platform encourages innovation by allowing developers to build new applications and services on top of the existing platform, or take advantage of solutions built by other platforms. Advisors are ultimately the ones who benefit most from this innovation.
SCALABILITY
Open APIs make it easier to scale up the use of technology, as advisors have control over choosing to integrate their apps with other systems as needed.
COST-EFFECTIVENESS
Advisory firms don’t typically operate with unlimited resources. Leveraging open APIs extends the abilities of tech solutions, often enabling greater functionality without the need to purchase additional systems.
INTEROPERABILITY
If your CRM has connected another app into your CRM, you already understand the importance of interoperability. Open APIs are what allow advisors to start and complete an action in one system, and have it automatically updated in the other. The time savings from this type of functionality is a game changer.
WHAT DOES A PORTFOLIO MANAGEMENT SYSTEM DO?
A portfolio management system can fill a wide variety of needs in an organization, but these four functions are the primary ways the software impacts the investment and asset management process.
INVESTMENT MANAGEMENT
Portfolio management software digitizes end-to-end investment workflows for asset managers and financial advisors. Often, they will make use of APIs to integrate between the advisory firm and its custodians, enabling a completely connected process.
Most importantly, the ability to fully manage investments in a single location delivers operational performance benefits to advisory teams. With higher efficiency, firms gain the ability to consistently deliver on client expectations and provide services that further support their efforts to help clients reach their desired outcomes.
Lastly, investment management services delivered through a centralized portfolio management system can even enable firms to add more services for more demanding client needs – like the ability to trade options.
PORTFOLIO REBALANCING
Every advisor knows that portfolio management is a time-consuming task, especially if your process involves the use of spreadsheets and manually entering data and checking formulas whenever a client portfolio needs to be rebalanced.
A fully functional portfolio management system provides the tools to make investment management scalable . For RIAs and asset managers, who leverage model portfolios, rebalancing technology is an essential piece of their tool kit. It’s not just for those who leverage model portfolios, either; the many firms who manage completely custom portfolios stand to benefit even more than those who deploy a set of models. It transforms a process that can take weeks, in some cases, down to a matter of minutes.
TRADE CREATION AND PROCESSING
All firms understand the process of creating trades – but few think about what goes on in the background when it comes time to process and execute their trade orders.
In years past, an advisor would have had to take multiple steps just to get to the point of trade execution after creating a list of their desired trades. Trades created in one system had to be downloaded into a spreadsheet, manually reviewed, and then uploaded to each of the individual custodians a firm might leverage.
That process, though, is time consuming and open to error. What if a trader accidentally types something into one of the cells in the spreadsheet before saving and uploading the file? It would take time to catch the error, and either make the original trade request impossible or even damage the client relationship.
Portfolio management software manages the entire post-trade workflow, including automatic formatting and delivery to each custodian via FIX and open APIs.
ASSET MANAGEMENT
While many financial advisors in RIAs handle their own asset management, TAMP platforms also  manage nearly $100 billion of RIA assets. For those who work as asset managers, dedicated trading technology is necessary to enhance their skills and provide the resources necessary to achieve best execution.
A portfolio management system with full, end-to-end workflows does much more than record your trades and send them to brokers. It also allows you to work your order, with parameters that lets you execute trades at exactly the price you want based on specific market conditions.
HOW TO CHOOSE THE RIGHT PORTFOLIO MANAGEMENT SOFTWARE
What type of financial firms can benefit from implementing a portfolio management system? Nearly all of them. That initial answer may be slightly too broad for a satisfactory answer, so this section will break down how portfolio management software addresses needs for the most common types of financial institutions
MID-SIZE RIA FIRM
Only 19% of RIAs manage more than $750 million in assets, meaning that the vast majority of RIA firms fall into the small to midsize business category.
For these firms, most time and effort is placed on meeting with and servicing clients. Their software needs to be easy to learn and provide the ability to create and implement workflows quickly. The list of features necessary also have to do with time savings, like the importance of rebalancing technology.
National RIA
The national RIA is a firm that typically acts as an aggregator or is primarily focused on growth through mergers and acquisitions. For this reason, their technology focus is primarily bent towards bringing uniformity and repeatable processes between various office locations and advisors with different backgrounds.
A portfolio management system that offers configurability and customization is paramount. To that end, a system that offers integrations with other advisor technology vendors through its open API infrastructure is the best way for these firms to take full advantage of the capabilities offered.
How do portfolio management needs differ for asset managers?
Optimizing portfolio decisions
An asset manager can’t guarantee investment performance, but they can control portfolio analysis and create a process to help them create optimal decisions. A portfolio management system can provide anything from real-time data on holdings, to risk metrics, and many other key performance indicators.
RISK MANAGEMENT
Asset managers have to be able to quickly identify and manage risks to client portfolios. With the real-time metrics provided by portfolio management systems, asset managers can make more informed investment decisions to help mitigate the potential impact of market volatility.
SCALABILITY
Asset managers should be able to focus on adding accounts without adding operational burden. The right portfolio management software helps asset managers handle a larger number of accounts, and more complex portfolios.
By automating manual tasks like record-keeping and data entry, asset managers can equip themselves to scale their business and manage additional assets without adding additional staff.
Turnkey Asset Management Program (TAMP)
BROKER-DEALER
Much like a national RIA, a broker-dealer’s needs include the ability to manage processes across thousands of financial advisors, for both the advisor who wants to manage assets as Rep as PM, all the way to those advisors who would prefer to insource or outsource asset management.
In particular, though, a broker-dealer would benefit from a portfolio management system that offers FIX trading capabilities. Improving the speed, efficiency, and accuracy of trade execution can quickly become a core way for a broker-dealer to retain advisors and provide that much more value in the relationship and service they provide.
By allowing for the automation of trade-related communications and minimizing the need for manual intervention in the trade process, a broker-dealer can vastly improve everything from internal operations all the way through to the client experience.
How the Flyer Portfolio Management System Supports Advisory Firms
The importance of selecting the right portfolio management software for your specific needs can’t be overstated. Depending on the type of firm you operate, the primary use case for your use of the software may be drastically different from another firm’s situation.
If you are searching for a new solution, Flyer Financial Technologies delivers functionality across the full portfolio management spectrum – and even includes order management system (OMS) level functionality.
And with a fully open API infrastructure, you’ll have instant access to all the top brokers and custodians in the Flyer Trading Network as you set yourself up to deliver best execution across your client base, no matter how large your trade orders might be.
