iRebal Acquired by TD Ameritrade
iRebal was acquired by TD Ameritrade last week for an undisclosed amount. I didn’t realize that rebalancing was a legitimate product category until I read “Rebalancing Act” by Joel Bruckenstein. He reviewed three software packages: iRebal, Tamarac Advisor, and eAllocator.
First of all, I’m surprised this product category can attract three independent software companies. (And I know of one other in development.) Most full portfolio management packages have rudimentary trading capabilities that work for most advisors. It doesn’t leave much for independent companies to pick at. Techfi had a trading package but we rarely sold a stand-alone version. It was always an add-on to the portfolio management sale.
I’m also astounded by the prices these guys are charging. $50,000 for rebalancing software?! I actually thought it was a typo but the price is mentioned several times in the article. Wow. Just… wow. That software better jump up off my computer, walk to the custodian, make the trades and pick up my lunch on the way back. I usually don’t advocate throwing people at problems but you can hire a full-time staffer for that much money.
I don’t know how much TD Ameritrade paid, but iRebal is a smart purchase. Their competitor, Fidelity, sometimes beats Schwab out for large relationships because Fidelity can do rebalancing. (Schwab can’t.) Schwab is now the odd-man-out on rebalancing and I suspect they’re thinking about an acquisition of their own.
Derek Tinnin said,
February 5, 2007 at 5:50 pm
As a user of iRebal, I have to tell you that if you would need to hire several traders and/or portfolio managers to replicate what iRebal can do (assuming you manage a relatively large number of accounts). The $50,000 price tag looks pretty cheap when compared to that benchmark.
The trading packages integrated with most portfolio management systems typically look to rebalance at the account level, not the portfolio level. That’s because it’s easy to have each account match a model. In the real world of wealth management, however, this approach to portfolio management is lacking. Most trading packages don’t view security location, client-specific cash needs and tax characteristics the way a human portfolio manager does.
As an example, let’s assume you have 500 clients and wish to review each client to not only rebalance, but also to consider new deposits and upcoming cash needs, tax-loss harvesting, efficient location of securities, realized/unrealized gains, etc. You would then generate and upload the necessary trades (with complete SEC documentation). How many hours would it take to complete this task? Most firms typically conduct formal reviews like this using a calendar-based or client ranking method. How many people would you need if you wanted to do this weekly or even daily?
iRebal gives us the ability to look at every portfolio we manage every day. We don’t take action on every client every day, but what is the value of missed opportunities. For clients that need attention, we can be very timely and ultimately add value in terms of after-tax performance and other measures.
Mike Benson said,
February 7, 2007 at 3:01 pm
Great insight Mr. Tinnin. Rebalancing is a complex process that is different for every firm. iRebal’s price tag is justified when you look at all it can do for your firm, that still does not make it any more affordable for small advisors that simply cannot pay the 50k in licensing.
Rebalancing is as complex as portfolio accounting due to all the variations of rebalancing at all the different firms. From you terminology I would guess that you also use AXYS and between the two you could be paying 100k a year in software licensing.
However, you are taking the right approach in saying it is saving you head count. The ROI calculation is what many shops miss. Many people don’t understand that they have to ask how will this product save me money? Will it save more than it costs? In your case you went one further and asked how much value will the software provide my clients? What will that earn me in revenue and retained clients?
mathew said,
March 7, 2007 at 12:23 am
what do smart people think iRebal went for?
i’m curious.
http://mattishness.blogspot.com
Matt Abar said,
March 9, 2007 at 7:54 pm
I don’t know anybody involved in the deal and have no idea what iRebal’s vitals are. But let me flip my napkin over just for fun…
I think TD Ameritrade did the deal mainly because they wanted the rebalancing capability in-house to offer to their reps. If so, then they don’t care much about the revenue potential of the software so things like company size and projected revenues don’t matter much.
They probably valued it based on the cost of re-developing the software. I’ll guess that number at $3 million. And tack on a bit extra because TD Ameritrade gets some guaranteed revenue from iRebal’s existing clients. Say another $2 million.
Final wild ass guess: $5 million. Watch… I’ll be off by a factor of 10.
WealthFly » Unified Managed Accounts said,
November 28, 2007 at 5:53 pm
[…] This is why I think the UMA is a marketing gimmick. I know it will upset many people but really we have had this for years. When we wrote Techfi Trader, it had this capability. When Matt did a post about iRebal earlier this year, he mentioned that it had this capability too. […]
Robert Beauclair said,
April 24, 2008 at 1:02 pm
Does anyone know where an individual can purchase a small rebalancing sofware package for individual use. I am tired of financial advisors who do not do their job and still calllect fees. I have a small seven figures account.