Products August 13, 2012

TD Ameritrade Enhances iRebal Rebalancing Software

Enhancements to TD Ameritrade Institutional’s rebalancing software allow advisers to submit trades from iRebal directly to Veo, saving time and reducing risk.

 

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The accuracy and efficiency of the portfolio rebalancing process have been improved, according to the firm. Advisers looking to take immediate action on portfolio rebalancing, cash management or tactical trading decisions in client portfolios can enter orders directly from iRebal to Veo, TD Ameritrade Institutional’s adviser trading platform. Processing trades within the rebalancing tool saves time and helps minimizes risk of errors that occur when translating trade data between multiple disconnected platforms.

The inefficiencies associated with the rebalancing process, including the need to export trade files and move back and forth between different technologies and platforms, have been eliminated, according toJustin Di Filippo, senior product manager, iRebal at TD Ameritrade Institutional. “This time-consuming process can now be executed with a click of a button thanks to an integration using Veo Open Access capabilities,” Di Filippo said.

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iRebal leverages TD Ameritrade Institutional’s open API (application programming interface) allowing the rebalancing technology to process trade orders straight through to a custodial platform. The new feature permits advisers to administer buy-and-sell orders in real time within a client portfolio. Additional trading capabilities, including “time in force” and “limit price” parameters, may also be set so advisers can capture trading flexibilities that previously would have been managed separately on their custodial platform.

In addition to straight-through trading, iRebal users will experience simplified navigation. An enhanced dashboard arrangement with ribbon menus gives advisers one-click access to their most commonly used tasks and workflows when rebalancing client portfolios. Tabbed screens can be pulled from the main dashboard to take advantage of an adviser’s dual-monitor setups in their office.

Also new to iRebal is a customizable client portfolio report. Advisers can create graphics to show a client’s portfolio allocation and provide a breakdown of positions held in the account, including cash. Advisers can also add company logos, disclaimers, notes and contact information to brand each report.

 

Data & Research August 13, 2012

DC Plan Sponsors Should Focus More on Deferral Rates

Other factors are more important to defined contribution (DC) plan success than fund performance, according to research from Putnam Institute.
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A Putnam Institute research paper, Defined contribution plans: Missing the forest for the trees?, shows that a number of variables are at work in determining plan effectiveness, including deferral rates and plan design, asset allocation, rebalancing behavior, and individual fund performance. Putnam contends that the industry would do well to bear in mind this hierarchy when considering ways to boost retirement preparedness.   

“As we look at the progress participants are making toward securing a better retirement savings outcome, deferral rates are one of the most important factors to stress, whether in communication to participants about how to accumulate more wealth or in restructuring DC plans for better saving and investing success,” W. Van Harlow, Ph.D., CFA, director of research at the Putnam Institute, wrote in the paper.  

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While it is not surprising that if a person saves and invests more, he might be more likely to accumulate greater wealth, but the study found the size of the difference in terminal wealth can be dramatic. As an individual’s contribution increases from 3% of income to 4%, 6%, and 8%, the final balance after 29 years jumps from $136,000 to $181,000, $272,000, and $334,000, respectively.

 

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Even a 4% deferral—which represents a 1% increase that does not take advantage of the plan’s full matching contribution—would have a wealth accumulation impact 30% larger than the “crystal ball” fund selection strategy, nearly 100% larger than the growth allocation strategy, and approximately 2,000% larger than rebalancing. “Putting deferral rate changes in these terms, the performance of underlying funds and rebalancing, in particular, appear to become far less meaningful when compared with the impact of higher deferral rates,” Harlow noted.  

The study data suggest that focusing on helping eligible employees enroll and/or increase their deferrals into their DC plan is an effective way to help boost wealth accumulation potential. Therefore, Putnam says services such as auto-enrollment and auto-deferral increases are two critical best practices that plan sponsors should consider implementing.   

According to the paper, a qualified automatic contribution arrangement (QACA) that increases an individual participant’s deferral rates from 3% to 10% by one percentage point annually—and then maintains a 10% deferral rate thereafter—would have roughly the same impact as an 8% deferral rate over the 29-year time frame employed in the study. “Clearly, auto-escalation features can play a vital role in helping secure substantially higher savings for plan participants, particularly the majority of savers who have historically tended to participate passively in their plans,” Harlow said.  

The research paper is available here.

 

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