Quick Takes: An Update on Capitect

Quick Takes: An Update on Capitect

Quick Takes are designed to provide readers with a quick overview of a product or service of interest. They are not designed to be a comprehensive review, but rather an informational piece that draws reader’s attention to something that I’ve recently looked at that interested me enough to share it with you.

Capitect is a promising young firm that came to my attention a few years ago. At that time, the firm’s focus was clearly on the client online experience. It was one of a few companies essentially offering a client portal as a standalone product. The portal includes account balances, performance, asset allocation account aggregation powered by Yodlee, and a document vault.

Lately, firm founders Edwin Choi and Greg Yee have been busy building out the platform’s capabilities to make it more than just a portal. They have built out their own performance reporting engine which can calculate at the account, client or household level. They are working on building their own rebalancing engine. Initially, this rebalancer will only work at the account level and it will not include automated tax optimization or asset location, but those features are expected at a later date. One advanced feature already available is the fractional ownership of accounts, an important feature for many firms with which Capitect deals.

For asset allocation, Capitect automatically assigns an asset class to each asset based upon the Morningstar categorizations, but firms can override those classifications and create their own.

Where Capitect really shines is in the creation of portfolios and model portfolios. They employ sliders wherever possible that allow you to easily modify portfolio characteristics. For example, let’s say that based upon a client’s risk score, you determine that they should be 70% in equities and 30% in fixed income. You have a model portfolio that apportions 35% of the equity allocation to foreign equities. If for some reason the client objects to such a high foreign exposure, by simply sliding a slider, you can dial down the foreign asset allocation to say 20%. The software will reallocate the acceptable asset classes to maintain the same risk/reward characteristics while limiting the foreign equity exposure.

The slider system can be used in a similar fashion to construct a completion portfolio. Let’s say that a client has sizable position in a large cap US equity that can’t be sold. If it is 10% of the total portfolio, you can count it as part of the large cap exposure, ignore it, or count it partially. With the sliders, you can systematically set an exposure and keep it constant. For example, if you set the slider at 50%, you’d be giving the position a 5% overall weighting and ignoring the rest, but you would be doing it consistently over time.

Capitect also allows you to build glidepaths for portfolios. You can create models and assign a glidepath to a model, or you can assign glidepaths to individual portfolios. As is the case elsewhere, you can modify glidepaths with sliders. You can change the shape of the path using sliders, and you can also change the risk parameters of the glidepath at the portfolio level, the model level and at the firm level. For example, if a firm wanted to allow advisors to adjust a glidepath, but they wanted to set guardrails to limit the expected variation from the mean, they could do so easily.

Joel Bruckenstein
Joel Bruckenstein
Joel P. Bruckenstein, CFP®, is Publisher of the T3 Tech Hub (formerly the T3 newsletter) and the producer of the Technology Tools for Today (T3) Advisor Conference, the only annual technology conference for independent advisors, as well as the Technology Tools for Today (T3) Enterprise Conference. Bruckenstein is an internationally acclaimed expert on applied technology as it relates to the financial service industry. He is the co-author of three books: Virtual Office Tools for a High Margin Practice, Tools and Techniques of Practice Management, and Technology Tools for Today’s High Margin Practice. Joel’s monthly technology columns appear in Financial Advisor magazine and Financial Planning magazine. In addition, he compiles the annual technology survey for Financial Planning magazine. Bruckenstein has for more than twenty years advised financial service firms of all sizes on improving their technologies, processes and workflows. For more information about Joel Bruckenstein and the services his firm offers, please visit www.JoelBruckenstein.com

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