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Outsourcing Alternative Asset Aggregation and More

Combining online portfolio software with alternative asset aggregation helps advisors satisfy the expectations of high net worth clients.

Bill Winterberg, 10/11/2012

In today's low-return investment environment, financial advisors are increasing their use of alternatives, hedge funds, private equity, and other similar assets in their clients' portfolios. Including such assets adds to portfolio diversification through non-correlated assets and raises the potential for investment income exceeding that of record-low Treasuries and fixed income. As the use of alternative assets grows, so, too, does the difficulty of aggregating and reporting accurate and timely data both internally to the firm and externally to clients.

Today's sophisticated investor now expects up-to-date information and full transparency with respect to their investments, challenging advisors to deliver the access clients desire. One solution aimed at helping advisors manage portfolios for high net worth clients and report on alternative assets is Palette Platform™ from Private Client Resources, LLC (PCR).

Palette Platform Genesis
Palette Platform is a Web-based portfolio reporting solution released for general use in July 2011 after several years of testing and development. The company behind the solution is Wilton, Conn.-based Private Client Resources, a financial data aggregator and client reporting service provider. PCR was created in 2000 after its founders, Joseph Dionne, former chairman and CEO of McGraw Hill, and Chris Snyder, founder and former CEO of Loan Pricing Corporation, failed to find a solution they felt could properly manage complex investments of high net worth individuals and families.

PCR set out to create a software solution tightly coupled with a back-office service bureau to deliver high-quality aggregated data, reporting, intelligent dashboards, CRM, and fee invoicing to its advisor clients.

"About 70% of the prospective clients we meet are managing client financial data through manual processes," said Rob Fiore, president and CEO of PCR. "And in most cases, we see many registered investment advisory firms using alternative assets in client portfolios, ranging anywhere from 10% to 70% of a client's allocation."

PCR establishes proprietary data feeds to a variety of financial institutions, and at last count supported over 3,700 feeds into Palette Platform. Financial data is retrieved from an advisor's account custodians as well as held-away accounts, and includes data for marketable securities, alternative investments such as hedge funds, derivatives and private equity, and clients' personal and real property. PCR's data services team of roughly 18 employees performs quality assurance on a daily basis, and a client services team of similar size addresses day-to-day needs of advisors using the platform.

Platform Dashboards
Palette Platform first presents advisors with a home screen displaying a one-year bar chart of the advisory firm's AUM levels, a pie chart of the firm's current asset allocation, open tasks to complete, and a summary of news headlines from Google and Yahoo news sources. The main menu bar along the top of the screen includes items labeled MIS (Management Information System), Portfolio Views, Reporting, Document Management, Collaboration Center, Invoicing, CRM, and Risk.

MIS allows advisors to view key metrics across all assets the firm manages. Example metrics include assets under management segmented by investment custodian, asset allocation also segmented by custodian, and the largest buy and sell transactions executed in client accounts over the last seven days. Fiore commented that reports in MIS provide greater transparency of actions taken by third-party investment managers, as PCR performs transaction-level reconciliation of such activity used to feed reports.

Portfolio Views
Portfolio Views is where advisors can view a multitude of reports related to individual client accounts, groups of accounts, or even account composites customized by PCR's client services team. Standard reports such as the portfolio market value, asset allocation, and top 10 holdings are included, and advisors can drill down into specific report details all the way down to the individual security level should they desire.

When drilling down to individual security reports, advisors can view the CUSIP, latest price, and asset classifications of securities. Palette Platform also integrates reports from proprietary independent equity research firms for covered securities to complement typical public company information.

Like most other portfolio reporting solutions, account data is aggregated down to the transaction level, so all buy and sell transactions are present, and performance reports for virtually any time period can be generated for all accounts in Palette Platform. One feature not found in most competing solutions is Palette Platform's Pro Forma report. Here, advisors can add asset classes that do not yet exist in a client's portfolio and then view how those new assets might affect the performance of the overall portfolio in the future.

Integrated Pivot Tables
Another feature uncommon to most portfolio reporting solutions is Pivot Analyzer™, which allows advisors to view summarized values corresponding to specific rows and columns of information. For instance, Pivot Analyzer allows users to view the total market value of all client portfolios (each field in a table) sorted by manager (listed by row) and by asset class (listed by column). The summary pivot table shows total client asset allocations for single managers that administer multiple asset strategies.

Because pivot tables can display such a wide range of summarized data, PCR helps firms define and create their own tables according to their unique requirements.

Document Management
Many portfolio reporting solutions feature an integrated document portal to share reports with clients, and Palette Platform is no exception. However, PCR partnered with Vizit, an online document management software provider, to expand Palette Platform's capabilities beyond basic document sharing.

Palette Platform's document management center is used to manage custodian forms, fee invoices, letters of authorization, account statements, client reports, and other documents. In addition to document storage, Palette Platform adds version control, audit trails, quick search, and embedded document viewers, eliminating the need to first download a file and then open it using its native software application.

PCR's service team creates all of a firm's periodic portfolio reports for clients and automatically uploads them to the document management center. Reports are customized to feature a firm's logo, branding, and color scheme. Generally, advisors work with PCR to design and customize the look and feel of their reports, but they can use predefined widgets on their own to identify specific accounts or parameters to be included in report data.

Built in Collaboration
Should an issue arise with Palette Platform, advisors have the option of contacting their PCR service team or using the built-in Collaboration Center™. Collaboration Center displays a variety of details pertaining to the servicing of accounts, status of new account enrollment, and active tasks related to data validation.

"It's not a replacement for phone or email, but rather an alternate way clients can communicate with PCR and obtain updates on service requests," Fiore said.

Integrations and Mobile Support
Palette Platform provides much of what advisors need to manage portfolios, but also extends its flexibility with integrations with several third-party applications. CRM integrations with Salesforce and Microsoft Dynamics are available as well as an integration with macro risk analytics tool HiddenLevers. PCR anticipates it will also integrate with popular portfolio rebalancing software in the future, according to Fiore.

To round out this overview, Palette Platform currently does not have native apps for popular mobile operating systems like iOS and Android, but it is largely compatible with mobile Web browsers. Two notable features that don't work on mobile devices are the Pivot Analyzer and custom filter selections for portfolio and security screens; otherwise it works quite well on large-screen tablets.

The Advisor's Canvas
Pricing for the product ranges from one to two basis points of assets reported in Palette Platform, with the majority of advisors paying 1.2 to 1.3 basis points, said Fiore. PCR works with a wide variety of clients, including single and multi-family offices, private banks, and RIA firms managing from $100 million to well over $1 billion in client assets.

PCR also charges an implementation fee based on scope of work to be done to populate data into Palette Platform, which typically starts around $10,000. Most firms complete the implementation process in about two months, but firms with unstructured legacy databases or historical records on paper can experience implementation times of four to five months and a higher fee.

Firms that manage traditional assets like stocks, mutual funds, and ETFs find that most off-the-shelf portfolio management software is adequate for their needs. However, those who cater to high net worth individuals and families and the complex investments they hold demand much more from their software provider.

Leveraging the services of a provider like PCR as well as its technology resources found in Palette Platform has the potential to reduce the headaches of manually maintaining data on alternative and private investments. Advisors who struggle with these arduous tasks today will want to consider how Palette Platform can complement tools already in use and strengthen the services they deliver to high net worth clients.

Bill Winterberg, CFP, is a technology and operations consultant to independent financial advisors. His comments on technology have been featured in a variety of financial industry publications. You can view more information about Bill and see his schedule of upcoming speaking engagements at his Web site, FPPad.com. The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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