Charles Schwab says it is using analytics to help registered investment advisor firms streamline their clients’ portfolios.
Using the analytics, Schwab has helped advisory firms navigate situations ranging from having an excess of models and staying ahead of market cycles to succession planning and consolidation, according to Jake Gilliam, head of multi-asset solutions at Charles Schwab Investment Management.
The analytics are like an x-ray of an advisory firm’s portfolio, which is then compared to Schwab’s own portfolio construction framework, Gilliam says. Schwab conducts a cap-weighted, passive, fundamental and active portfolio analysis, which enables the firm to have a consultative conversation with advisors, he adds.
Schwab has seen “numerous cases where advisors have dozens of models,” including one that had more than 50 models, which became “very unwieldy” for that firm, according to Gilliam.
“As we went through our x-ray and consultative process with them, we were able to help them come up with about a dozen models that they would use across their business, help them reduce their cost from approximately 60 to 80 basis points per model down to around 20 to 30,” Gilliam said, referring to that firm, which he didn’t identify.
“It allowed them to really focus on growing the business, keeping people on track for their financial plan,” he added.
Many advisors have been adding growth-oriented investments to their portfolios, “effectively trying to capture what had worked well in the market in the past,” according to Gilliam. In such cases, he says Schwab has helped advisors think of ways to diversify their portfolios at lower costs.
Citing another example, Gilliam says Schwab helped an advisor add other investment strategies to the previously exclusively actively managed portfolios recommended by the firm founded by his father, which he didn’t identify.
The advisor wanted to appeal to “the new generation of investors” that is more open to exchange-traded funds and more comfortable with broad market exposure, according to Gilliam.
Gilliam says Schwab helped the advisor discuss with his father ways to blend “the best ideas of the active exposure that the firm had been built” with strategies that come with lower costs and are less complex.
Schwab is also able to help firms that have consolidated, which results in “many different approaches for clients” that are “really difficult to scale, according to Gilliam.
Using analytics, Schwab can show such firms the different models their advisors are using and how those can be pared down, according to Gilliam. One way of doing that is having a more common investment approach for the bulk of the portfolio, while leaving a smaller allocation for an advisor’s unique input, he says.
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