6 Steps to Fully Utilize Your Portfolio Management Software

Let’s start with a common conversation I have with RIA owners about portfolio management (PM) software solutions. I’m referring to systems that incorporate any combination of functions like portfolio accounting, performance reporting, client portals, rebalancing, etc. (see this Kitces post for the long list of options).

When speaking with firm owners who incorporate investment management into their practices, they often tell me, “I just want PM software with decent billing functionality.” In my opinion, they’re right on the money. That’s the perfect place to start. If you bought a PM solution and it didn’t have billing functionality, you might have overlooked an opportunity to buy a consolidated software solution with both reporting/accounting and billing functions in one.

So, my follow-up question is, “Beyond billing, what do you expect out of the reporting and other functions of the system?” And, I’m shocked to sometimes hear that the advisor has no interest in or need for the other functions. They’re only looking for the billing capabilities.

I say shocked, and I mean shocked, but it’s not because an advisory practice is compelled to provide performance reporting via a PM software solution. Rather, it’s because I’m surprised that any firm owner might buy a full-featured PM software without being fully convinced every function is necessary. It’s often a very sizable investment, and there are certainly standalone billing tools to consider. I usually conclude that they want the reporting/accounting functions of PM software, but they aren’t confident in how to leverage it to its fullest potential.

In what follows, we’ll closely examine how to get to that point. These steps can either be used to review your existing PM system or to guide you when buying new software.

1.) Start at the beginning: is your PM software intended to help improve your operations or is it being used as a communication tool with your clients (or both)?

If you’re suffering from operational exhaustion in your firm and you don’t have a central hub to perform some of your most critical portfolio management functions, then it’s likely that you need this to improve efficiency. You might also be struggling to get portfolio information in front of your clients, so consider how it can help on that front as well. Starting here can quickly get you pointed in the right direction as we move through the next steps.

Scenario A: You’re happy sending clients to your financial planning software (e.g. RightCapital) to log in for a client dashboard, and you’re periodically running performance calculations in excel. In this case, I’d say implementing PM software should be focused solely on operational improvement rather than any changes that might be visible to the client.

Scenario B: Imagine a firm where operations seem to be running really smoothly, and the advisors use PM software successfully on a daily basis. But they don’t have any login experience for clients. The only opportunity clients have to get a snapshot of any planning done for them or investment performance is by way of reports mailed periodically or in-person at a review. This firm is ready to level up the client experience and might not need to change anything about their internal operations. Of course, this implies that the addition of an online client dashboard can be done without interrupting the existing tech stack.

2.) Define the features required for each audience.

List precisely which features of the PM software are helping (or are needed) and group them by audience: internal vs. external. Don’t overdo it on the first pass, though, because the last step in the process (spoiler alert!) is to repeat all of these steps regularly and continually look for new features to expand on. I want you to intentionally keep this first version of the list bite-sized.

So, if you said that it’s an internal-only tool to improve operational efficiency, which tools exactly in the PM software do that? Are there 2 features? More? Using the same scenario from Scenario A above, here’s how the list might look:

• Audits of client household, asset category, and asset class performance
• Benchmark comparisons at each of the same 3 groupings
• Net and Gross performance calculations

With the scope of the firm’s needs identified, we now have a clear and measurable list of needs.

If clients are an intended audience (external), is the client portal the only feature you need to satisfy that problem? Or is there held-away aggregation, too? The more detailed your responses are, the more clearly you’ll be able to see where to apply your time and energy in training or utilizing those features. Using the same scenario from Scenario B shown above, here’s how you might respond:

• Client accounts and current holdings (updated at least through the prior market close)
• Periodic PDF reports
• Financial Planning information (either static PDF format or live/dynamic widgets)

3.) Audit your PM software’s features against your desired scope.

Most importantly, be certain that your lists are compatible with your PM software. You might have to tweak or delete items from your feature lists to accommodate your software’s capabilities, but hopefully you’re within close range. And my fingers are crossed that this audit will reveal additional features in your PM software to leverage that you hadn’t identified in your list.

Returning to Scenario A, where the focus is internal—imagine if your list looks like this after your audit:

• Edit needed: Audits of client household, asset category, and asset class performance (only 2 out of 3 are available)
• Edit needed: Benchmark comparisons at each of the same 3 groupings (only 1 of the 3 is available)
• No edit needed: Net and Gross performance calculations
• New feature found: underlying performance intervals for diagnosis of performance anomalies
• New feature found: More benchmark indices available than anticipated and custom blends also available

At this point, there are some tradeoffs to be made. Assuming the limitations found in the first two items on the list are acceptable, it’s good news to find 2 new features that weren’t originally identified in the list. You get to choose whether the new finds outweigh the limitations discovered in the performance and benchmarking. Regardless, the new features found may reveal additional opportunities to leverage the software and further support the firm’s internal investment management reviews, so this audit was incredibly helpful.

For Scenario B, consider if the results of the audit look like this for an external audience:

• No edit needed: Client accounts and current holdings (updated at least through the prior market close)
• No edit needed: Periodic PDF reports
• Feature not available: Financial Planning information (either static PDF format or live/dynamic widgets)

Obviously we hit a major roadblock here in finding that we can’t share with clients any financial planning information via a scalable or automated fashion. So we’re left with a tough choice in this scenario: Do we manually import financial planning summaries into the portal, or do we begin the search for a new system? You’ll want to spend some time reviewing these to ensure your original list was on point.

4.) Define what success looks like for each audience.

Describe your ideal outcomes even though some of the user experience (for advisors and clients alike) is somewhat unpredictable, and specific to each user’s technical skill interactive with software. A great definition of success will leave room for interpretation and customization for/by each user but will still make it clear when the process is on target.

For Scenario A, your definition might look like this:

• We are effortlessly running performance audits and benchmark comparisons within the first 5 days of each month across households and asset classes.
• We are identifying, diagnosing, and resolving performance anomalies.
• We are building custom benchmarks as needed for non-traditional portfolio.

You can see that in this case, as compared to the initial depiction of Scenario A, this firm would be in a far better operational position if this vision of success came true. And, yet, the vision is not too high to achieve. This list strikes the perfect balance.

I often hear advisors describe frustration that they haven’t gotten to where they wanted to be with their PM software, and it’s almost 100% curable by this step alone. In fact, you can easily start here and work backwards into steps 3, 2, and 1, if you like to work backwards.

For Scenario B:

• Clients should have the opportunity to log in to a live dashboard as needed, and yet, we also do not want clients logging in to monitor daily portfolio fluctuations.
• Clients should have the ability to access an archive of various forms/documents in the portal.

Note that it is not looking for a certain number of client logins. That’s the default that many advisors think of when launching a client portal, and they’re disappointed to see actual traffic is much lower than expected. Much like printed performance reports, which clients file away or shred without reading, the goal is to remind the client periodically that they have transparency with you and point them to the available resources. But, ideally, not to burden them with overly frequent reviews of the data.

5.) Document and communicate the intended purpose to each audience.

Now that we have the audience, desired feature list, and definition of success mapped out, communicating these items to each audience closes the loop and sets up all your hard work for success. If shared effectively, each user will uphold some accountability to the goals. Additionally, you’ll be providing markers to guide your users through and keep them focused on the features and use cases that you’ve prepared for them.

In Scenario A, your communication can include the points identified in step #4 without any adjustments. But, in Scenario B, you’ll want to take some time filling in more context and giving the client an opportunity to understand the purpose of the communication. For example:

We’ve launched a new online client portal to help share some communications from our firm and to give you a dashboard to periodically review your finances. Included in this online portal is data on portfolio performance, which hopefully provides a welcome bit of transparency into your investments. Our hope is that you utilize the new portal to view and download reports and occasionally check in on your financial plans as needed. In addition to the dynamic portfolio data, we will also be posting PDF exports of your financial planning documents to archive there.

Our intent is not to encourage you to monitor daily market fluctuations, since we know that that inhibits the ability to plan and invest for the long haul. Please let us know if that might be an issue for you.

Yes, you read that correctly. I strongly encourage you to define what the portal should be for clients, in addition to telling them what it shouldn’t be. And don’t be surprised if clients thank you for the clear and thoughtful communication.

6.) Roll out your plan and monitor it regularly.

With annual or periodic audits (like we did in step #3), you’ll stay on top of your PM software and continually grow with it as its feature list expands.

To Summarize

In short, many advisors rely on the PM software itself to reveal what it could and should be. Unfortunately, the market has allowed so many participants into the same space with a wide variance in features that there’s reason to believe you might be getting something different than you initially thought. Follow this step-by-step approach to regain control over your PM software and take it to its fullest potential.

About the Author

Jeff Snodgrass is a Senior Orion Consultant for XYPN Invest. When it comes to answering questions about Orion, there's no one better suited than Jeff, our resident platform pro, who is always ready and willing to lend a helping hand. But answers aren't the only thing Jeff has in spades. With his sharp wit and keen sense of humor, he's sure to give you at least a few laughs too.

Jeff is also the founder of the financial planning firm, Mindful Wealth, based in St. Louis and serving clients across the U.S. He is blessed with four ladies in his life and a baby boy.

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