Data Demands: Why Portfolio Personalization at Scale Relies on a Foundation of Good Data

By Mark Peabody, SVP of Products and Engineering

Data Demands Portfolio Personalization Hero 644x350

Many of today’s most active and sophisticated investors seek personalized investment solutions to improve their tax profile and align their portfolios with their values. As advisors and asset managers scramble to meet client requests with solutions like personalized SMAs, direct indexing, and tax managed portfolios, they confront a challenging truth: the greater the demand for personalization, the greater the need for accurate, timely data. Managing multiple portfolios at scale increases the urgency, requiring levels of data integrity and integration that go far beyond the limitations of spreadsheets, overnight batch updates, less than daily reconciliation schemes, and other forms of manual data manipulation.

Applying one solution across many portfolios may be reasonably manageable, but when you personalize hundreds, thousands, or tens of thousands of portfolios, oversight and trading can become exponentially more complex. To incorporate portfolio preferences, tax considerations, and intraday account activity into daily oversight and action, asset managers, home office overlay teams and/or advisors must process a large volume of clean data – the absolute foundation for effective portfolio personalization and management at scale.

In this post, we’ll take a deep dive into that data: what’s required, why it’s important, how it works.

Let’s get real about time

From the market and reference data that provides context, to client-specific data such as holdings, trades, cash flows – and most importantly – the restrictions that define personalization, all data must be accessible in real-time.

Consider the challenge. To fulfill personalization, managers must rely on a range of market and securities data, as well as up-to-date accounts of the portfolio’s current holdings and activity, all overlain by the client’s preferences. Batch files, moved via overnight cycles, simply cannot keep up. As portfolios are affected by changing market prices, cash flows, trades, and other activity, advisors need real-time insights for accurate oversight and trade generation.

The ability to assess complicated activity as it unfolds is critical for making the right decisions at the right times. We must meet the complexity of portfolio personalization with the speed of real-time data access. The ability to view real-time holdings that reflect intra-day transactions at any point during the day is critical every day, and an absolute necessity during times of market volatility.

Tax lots matter a lot

One of the core drivers of personalization is the ability to manage/optimize after-tax returns throughout the year, and/or conduct tax transitions to reach portfolio goals. Both objectives require tax lot accuracy, the ability to understand what was bought, when, and at what price?

Scale needs automation, and to automate portfolios in a tax-aware manner, and/or for successful integration with tax optimizers and managing direct index portfolios, advisors need accurate tax-lot data.

“To find tax loss harvesting opportunities, advisors need a true picture of unrealized gains or losses,” says Jay Artz, Principal Product Architect at Vestmark. “And precise tax-lot visibility is essential for optimally transitioning portfolios from their starting points to desired, personalized targets. In general, all tax managed portfolios rely upon accurate tax lots for ongoing management and optimization.”

Simply knowing what tax lots you hold – or think you hold – is not enough if you are not always in sync with the custodian’s tax-lot records. Daily reconciliation of tax-lots to the custodian is crucial. Then trading specific tax lots can be automatically communicated to the custodian as part of streamlined automated rebalancing workflows.

4 19 22 blog quote

Daily reconciliation across everything in accounts

There’s what we expect…and then there’s what’s true. VestmarkONE® performs automated daily reconciliation of transactions and holdings – down to the tax lot level - to close the gap. Once again, access to complete data sets makes the difference.

Accurate portfolio oversight and trading depends on making transactions and having positions at the tax lot level that are in line with the custodian’s data. In fact, it’s impossible to automate and scale personalization and tax management across thousands (or hundreds of thousands) of accounts without reconciled data. Clean data, reconciled daily, is also fundamental for accurate performance calculations and for practical integrations with other important tools for optimization, managing risk, financial planning, and more.

Preparing for reporting

In addition to fulfilling the obligation to report performance, complete, accurate and consistent data is necessary for tracking against goals and monitoring conformance to ESG and other personal preferences.

Deep data allows for the historical tracking of portfolio performance over time. To make reasonable trading decisions, advisors need to account for cost-basis and holding periods – a critical understanding for determining short and long holdings and for managing wash sales.

Sharing data with integrated applications

Portfolios don’t exist within a vacuum, but within a network of applications that provide management and accountability through trading, accounting, and reporting. To ingest and use real-time data, systems need a means for real-time connectivity: the Application Programming Interface (API).

As an alternative to file transfers and batch processing, APIs provide secure, real-time connectivity among applications, providing seamless integrations from backend systems to user desktops. Real-time data plus API connectivity create the best environment for timely investment management and investor servicing.

The hard work has been done for you

Managing all the data you need for personalization at scale can be challenging. Vestmark makes it simple. Our real-time data resources are among the best available, and our trading and accounting systems are completely integrated, making personalization at scale a practical, achievable reality. Get the complete story by contacting us today.

By Mark Peabody, SVP of Products and Engineering