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Cetera spends millions on rebalancing software to make its reps more RIA-like

Automation of investment management using Folio Dynamix follows Advent implementation

Monday, May 16, 2011 – 1:53 PM by Brooke Southall
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Barnaby Grist: We’re starting with large advisors and there’s quite a wait list.

Brooke’s Note: What happens when you take a former wirehouse CEO, a bunch of broker-dealer reps who survived ownership by an insurance company, a fistful of venture capital, some poached executives from positions of leadership in the RIA community and put a name on it that could serve for a Latin Club in a high school? That’s what we’re trying to find out by following the progress of Cetera Financial. We’re working on a separate story of an RIA who did a reverse breakaway to join the company.

Joining a small but growing number of custodians, broker-dealers and RIAs with big investments in trade order management and rebalancing software, Cetera Financial Group has invested millions of dollars to make sure its advisors won’t be bogged down by the time-consuming task of keeping stocks and bonds allocated as markets fluctuate.

Cetera’s new service, designed by FolioDynamix of New York City, is free to advisors affiliated with Financial Network Investment Corp. of El Segundo, Calif., and Multi-Financial Securities Corp. of Denver, Colo., though smaller advisors won’t see it for a while. Cetera is the Los Angeles-based renovation of the old ING broker-dealers.

Wait list

“We’re starting with large advisors and there’s quite a wait list,” says Barnaby Grist, Cetera executive vice president, wealth management. Grist was hired away from Schwab Advisor Services in February 2010 to bring an RIA flavor to Cetera.

He has filled a number of positions with executives from the RIA custodians. See: Jay Quinn joins Cetera subsidiary to help Barnaby Grist pave way for more hybrid RIAs and See: Cetera lifts a high-end talent out of Pershing but can the IBD establish itself as a brand presence among advisors?.

Grist previously oversaw making Advent’s APX available to Cetera reps. See: Cetera Financial shores up its technology as it prepares to take on LPL for big hybrid RIAs.

Many RIAs have adopted rebalancing software provided by companies like RedBlack Software, iRebal, Tamarac and Total Rebalance Expert as a means of gaining a competitive edge.

Though it is unclear how the Cetera rebalancing effort will stack up with industry solutions in place, Grist believes that offering this level of technology to IBD reps at no cost gives his company one clear edge.


“Today advisors solve this (need for rebalancing) with old-school Advent Moxy and new school Tamarac but either way they pay $10,000 a year to get the solution – or iRebal, which is a $50,000 solution.”

However, TD Ameritrade has modified the iRebal pricing structure since it acquired the company in 2007, said the company. Though larger advisors with assets approaching $1 billion may pay $50,000, smaller firms may pay as little as $20,000 annually, according to its spokeswoman, Kristin Petrick.

Advent and Tamarac did not respond to requests for comment on Grist’s statement.

The tech move is the latest step by Cetera to inject venture capital into an old-line independent broker, ING, and give it many of the bells and whistles that top RIAs are accustomed to using in their practices. The capital behind Cetera comes from Donald Marron, former Paine Webber CEO, who invested in the company with his LightYear II fund.

Cetera allows its advisors to hold assets with outside RIA custodians. Grist said in earlier interviews that fellow IBDs like LPL tend to serve smaller, less sophisticated reps.

RIA custodians are too far removed from advisors to help them effectively with their businesses, he adds in the recent interview.

1,000 flavors

“Our reps encourage us to get closer to them in a way a standalone custodian just can’t do because they’d have to provide 1,000 flavors,” he says.

Counting the reps of PrimeVest of Minnesota, Cetera has nearly 5,000 reps including 800 financial institutions.

Two of the smaller ( and faster-growing) RIA custodians – Trust Company of America and Folio Institutional — have differentiated themselves by making rebalancing software central to their value proposition and giving it away for free.

Grist says he admires what Trust can accomplish – to a point.

“Trust Company of America has a strong technology platform. I view what they’re doing as definitely analogous. There’s a distinction in that we can integrate the clients into the advisor desktop, SmartWorks, in a way that no stand-alone custodian could do.” See: Here’s how advanced trading technology boosts financial advisors even if they eschew market timing

See: Bob Oros, national sales director for Trust, says he believes his custodian achieves maximal integration.

“You don’t find a technology and rebalancing platform any more integrated than ours. It’s built right inside the custodial platform so no data needs to be uploaded or reconciled – and we’re not doing it with a third-party provider.”

Grist believes that his company may also have a significant edge over its fellow competitors in the IBD realm.

LPL inflexible

“LPL’s rebalancing is very inflexible, and it can only rebalance mutual funds. You can’t even rebalance ETFs. You can imagine how frustrating that is.”

LPL Financial’s Joe Kuo says that his company is able to offer a rebalancing product to all it advisors for a monthly subscription fee, which it does not disclose.

“We currently offer the Advisor Software Inc. (ASI) Portfolio Rebalancing Solution, which fully supports electronic trading of equities, mutual funds, and ETFs.

The company also has an “internally built tool,” he adds.

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Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Dan Arnold

Top Executive: Benjamin Welch

E*TRADE Advisor Services
Asset Custodian
Top Executive: Joshua Pace

Cetera Financial Group
RIA-Friendly Broker-Dealer
Top Executive: Larry Roth

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