It all started out as an academic research project. In 1997 Asset Dedication founding partner Stephen Huxley, then a professor at the University of San Francisco School of Business, began working with the firm's eventual co-founder, Brent Burns, to engineer retirement income portfolios for individuals using liability-driven investing. The concept was straightforward enough: Borrow a method common in the institutional world and tailor it to suit the needs of individual investors.
They would build income-matching portfolios -- similar to what a pension fund does when it matches the payments that are paid out to its pensioners, only Asset Dedication's efforts would be geared toward individuals who need to build cash flows to pay off living expenses, such as a mortgage, according to Burns. "The two entities face the same challenge," he explains. "The pension fund has a stream of payments it has to cover; the individual has a stream of payments [he or she] has to cover."
Burns and Huxley did a majority of their research in 2002 and 2003. During that time, they tested a variety of scenarios using algorithms to reduce the number of bonds that they needed to buy in order to match income streams. "Initially we were very technologically constrained because the algorithms we used to build our portfolios ran several hundred to several thousand simultaneous calculations in order to figure out the cheapest price for a portfolio," Burns recalls.
"I would start running [the calculations], then I'd go to sleep and wake up in the morning hoping that the computer didn't crash and that it was able to get through all of the calculations before I needed to do something else with the machine," he continues. Limited by the technology at the time, Asset Dedication was unable to find a cost-effective way to create the individualized portfolios, so the firm focused its business strategy on providing consulting services to other advisers, Burns notes.
Of course, Asset Dedication's technology hurdle was only temporary. In accordance with Moore's Law, it wasn't long before dual-core processors and other computing innovations enabled the firm to complete -- in mere minutes -- the complicated calculations that used to take days. These new advances finally allowed Burns and Huxley to expand their business into a full-service subadvisory firm offering individualized portfolio management to registered investment advisers.
"So now we're able to offer these individually constructed liability-driven investing portfolios that are engineered specifically to each client's cash flows," explains Burns. "The technology that allowed us to build portfolios quickly allowed us to ramp up the rest of the business."
But the expansion didn't come without its growing pains, Burns acknowledges. The firm soon had hundreds of accounts, and even more data related to those accounts, to keep track of. "Our approach is a little different as a liability-driven investment portfolio," says Burns. "We need to know what the actual cash flow streams are that we need to match, what we need to generate and for how long. There's a lot more information that comes out of the financial planning process that flows into our system, so we needed to build out a system for managing that."
In 2009, Asset Dedication affiliated itself with BondDesk Group, which offers a fixed-income electronic trading platform, and gained access to bond inventory and a trade order management system. Burns and Huxley then enlisted the expertise of technology guru Joel Bruckenstein, founder of Technology Tools for Today (T3), to help put the rest of the pieces in place.
Fitting the Pieces Together
"When they first came to me, they had very little money and very few employees, but they wanted to accomplish a lot," Bruckenstein relates. "The idea was that they would outsource their whole IT system -- everything from document management to CRM as well as portfolio management and portfolio rebalancing." He adds, "Outsourcing made a lot of sense because it allowed them to concentrate on what they do best."
Over the next few months, the three men worked together to vet a wish list of technology providers as well as plan what was to be done in-house. Ultimately, Burns says, he wanted to create a seamless experience for anyone using the system, be it a client or internal staff. "As an adviser takes a client through the financial planning process they identify the cash flows that they want the portfolios to generate, and we want to make that process of giving us information as easy as ordering a pizza," he says.
To accomplish that, Asset Dedication developed AdvisorSpace, a web-based platform built on a .NET framework that utilizes several key technology products, including Tamarac for portfolio management, Microsoft Dynamics for client relationship management, SharePoint for communication and workflow, and Laserfiche for document management. Advisers can log into the system from anywhere via a laptop or even an iPad. Single sign-on capabilities give them access to everything they need for client meetings -- from marketing materials and sample proposals to DocuSign, an electronic signature technology that makes the signature process almost immediate, according to Burns.
"All of the systems integrate very easily because they're meant to integrate," he says. "Not only did we want to go with best of breed, but we wanted to go with best of breed that could easily be wired together and customized to create the system we needed without a whole lot of additional development expense."
Burns adds that Asset Dedication will soon be extending the functionality of the system's online performance reporting piece. (At press time, the firm was testing the functionality on a small group of advisers and expected it to be fully in place by the end of January 2011.) "We're making it so that the advisers who work with us can really leverage our system," he says.
"Just like I want to make my firm as virtual as possible, advisers are going to be more profitable if they can do the same," Burns continues. "So if I can trickle down some of that functionality to them where they can run their own reports ad hoc in a way that's secure and in a way that they don't need staff, why not leverage our system to help them expand their own functionality?"