Why Defining Investment Operations is Critical to Growing an Investment Advisory Business

Technology is critical to growth but so is your process

As a rebalancing and trading platform, of course we’re going to herald the merits of technology when it comes to your account management and trading operations — but there’s more to the story if you’re looking to grow your investment advisory business.

Defining your investment operations is critical for good business, regardless of the size of your firm. Mapping out your procedures, and coupling that with the framework technology provides can improve your business in many different ways that we’ll discuss below.

Investment Operations Headaches

As an RIA, you’ve seen and experienced the mundanity of maintaining your client investment accounts day in and day out or felt the dread of an upcoming quarterly rebalance.

If the proper work to define your investment process has not been done ahead of time, you’re potentially asking for difficult scenarios to crop up when you are maintaining or realigning your clients’ portfolios. Any of these sound familiar?

This is why it’s incredibly important to: 

  1. Clearly document and define your investment plan
  2. Ensure you have the right personnel in place to manage the process
  3. Leverage technology to streamline account management and trading

Time and Resources

time-and-resources-graphInvestment advisory is a service business. And yet, independent advisors spend about as much time in a week managing investment operations as they do in face-to-face meetings with clients. When you account for things like: investment research, investment management, proposing trades to clients, actual trading, on top of daily activities like trading for cash raises, it becomes easy to see how there’s a finite amount of time left for important, core activities such as meeting with clients.

Without a proper structure and strategy, time is taken away from developing client relationships. Without technology you are going to constantly spend extra employee resources – once again time taken away from talking to clients and demonstrating your value to them.

This is also going to create more administrative tasks and less opportunity for delegation from advisors. If everything is “living in the advisors head,” how can other members of the firm be expected to handle these critical functions?

Scalability and Business Development

Consider this: does your firm have the capacity for rapid expansion? 

Or will you be required to continually add employee resources — the largest overhead expense of any company — as business grows? 

As you bring on new clients, you’ll want their portfolios to fit into a predefined process that is scalable so you don’t end up with new portfolios just being “added to the pile,” ever extending the investment process and causing neglect to your existing client portfolios.

Can you explain your investment practices to your client, and then be held accountable for them? Having a client ask you, “why is there so much cash sitting in my account? I made a deposit weeks ago” is one of the worst scenarios to be in as an RIA.

Through technology that utilizes portfolio rebalancing and drift monitoring, you can overcome these situations and make sure your accounts are always properly aligned.

Imagine how much more time you’d have in each day if you could automate many of the tasks you repeat over and over every day.

For example, here are some systematic workflows that can be created when you have the right technology:

  • Investment Evaluation:  When to make a change or not make a change to investment strategies.  You might consider investment analytics or economic data.
  • Implementation of the Investment Strategies:  This is the actual process for creating the orders.  Things to consider are tax consequences, liquidity of investments, market trends
  • Cash Management: This is often the most common reason for trading, and it is important to have the right processes in place.  There are many ways to do it and in a large environment, this can be difficult.
  • New Accounts:  Investing new accounts is also an area to standardize.


Business Continuity and Value

Business continuity and the value of your business depends on defining good investment management practices. If an advisor were to leave your firm, are you able to continue servicing his or her accounts in the way the client expects? Or are you totally left out to dry? 

Defining your process in the framework of a technology can help minimize the risks that come along with inevitable personnel changes. If an advisor were to “be hit by a bus,” is all of their knowledge lost? Or do you have practices in place that allow you to carry forward? The idea of everything living inside an advisor’s or principal’s head is going to drastically decrease the opportunity for continuity in your business.

Also, this has a direct impact on your business’s value. If an acquisition is in your business’ future, are there strong institutional processes that can be transferred to new ownership? If there is dysfunction with your investment process or a massive amount of tribal knowledge, transferring ownership of your business becomes much less realistic.

Additionally, consider that you want to continuously improve your advisory firm. If you don’t have your process(es) to manage all of your client accounts mapped out, then how can you be expected to improve upon those practices? When your investment process is documented and understood, you have the ability to review those practices and iterate on them to improve your existing state. If you have a lot of tribal knowledge, then how can you expect any of that to improve or change? You have to first define how you do things right now first.


Fiduciary Responsibility

It is an advisor’s fiduciary responsibility to put the client’s needs and accounts before their own and in a fair and equal way. Are you trading and rebalancing portfolios in the best interest of your clients — or only when time and resources are convenient?

Another question revolves around treating your client accounts equally. If there is no scalable process in place, that means you are trading some client accounts one day and a different set of client portfolios another day, creating situations with different execution prices and variable performance between clients. 

Now, everyone knows if a client has a cash request or new money that needs to be put to work accounts are traded at different times regularly. However, for investment strategy changes or periodic realignments — all of your clients should be getting the best execution possible through bulk rebalancing and block trading. In order to accomplish this, you need strong processes and technology to help your team.


Achieving Operational Bliss (Conclusion)

Defining your process:

You have to define your process — your “secret sauce.” It can be secret, but internally it must be mapped, documented and practiced. When it is time to realign your accounts, you need to look to a clearly defined procedure to usher you through. There should be consistency here. Every day is a new day, but you don’t want a variable, dysfunctional mess every time you have to go through rebalancing and trading.

Having the right personnel: 

A piece of technology won’t magically transform your firm’s operations. You have to find the right person to manage the tech. They don’t even need to be someone with a passion or a background finance but they should have a passion for technology. Advisory practices would be better served with even just a single engineer or IT professional on staff. Someone with a STEM background who wants to understand technology and live in technology versus a person who wants to be face-to-face with clients. This distinction is key.

Choose the right technology:

If you were to ask any financial advisor why they got into this industry or why they are a financial advisor, the answer is never “because I love software.” But managing investment operations technology is critical. If you want or expect growth, you need technology to help you scale your advisory business. A platform like Blaze Portfolio can help with all of these obstacles.

Combine these three core functions together, and you are going to have a clean machine that allows you to focus on client needs, client communication and put you in a prime position for future development and growth.

For more on how technology can help advisors grow an advisory investment firm and start saving time every day, schedule a personal tour of our software.


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