Shining a Light on Software

fi360

The fi360 tools are a unique Web-based solution designed with a particular niche in mind, that of the investment fiduciary. A fiduciary is the highest standard in the industry and is the standard that Registered Investment Advisors, among others, are held to. This application applies not only to fiduciaries themselves, but to anyone who offers products subject to fiduciary rules, such as most retirement plans that fall under ERISA. This product is available in your choice of Silver, Gold, or Platinum levels. The Gold Toolkit is divided into three sections, My Client Manager, the Analyzer, and a group of additional tools. My Client Manager is where you establish clients, create an asset allocation, formalize an investment policy statement (IPS), select portfolio holdings, and produce personalized, client-specific monitoring reports. The “Analyzer” application allows you to search for mutual funds, ETFs, and separate accounts. You can also find a fund’s fi360 Fiduciary Score, create custom due diligence screens, and produce investment reports. The third section of additional tools is a resource area with reports, sample models, and slide presentations.

Included in the My Client Manager is an asset allocation optimizer, which, according to the company, is in the process of being revamped through a partnership with New Frontier Advisors. The new optimizer will use a technique called Resampled Efficiency, which is patented by New Frontier. These enhancements will be complete in January 2008, fi360 says.

Once a portfolio is optimized (on an asset class level), you can produce a two-page PDF report containing a pie chart, five-year average return and five-year range of returns for the chosen portfolio, and a worst-case one-year return, plus additional information.

From there you can not only prepare an IPS but do so for several different types of clients including individuals, retirement plans (committee directed or self-directed), personal trusts, and foundations and endowments. When the IPS is complete, you can move on to select the specific holdings you will use in the portfolio and then produce a number of multi-page reports in PDF format. The reports review the client from many different aspects: investment level to aggregate portfolio level.

The Analyzer application is a good tool to conduct due diligence on specific investments and produce PDF reports. There, you can see a fund’s quartile rank in a number of categories.

As for training and support, there is a comprehensive tutorial available on the fi360 Web site as well as a number of FAQ’s. If you get stuck, pick up the phone and call. Even though fi360 is a relatively small organization, I have usually been able to reach someone.

The cost for this offering starts at $675 for the Silver Tools increasing to $1,375 for the newly launched Platinum Tools.

Just like most Web-based applications, it’s a little more difficult to maneuver than a desktop tool, but with a little patience you’ll be fine. If you’re an RIA or act in a fiduciary capacity, you should check this one out. Even though the price was set for an increase in January 2008, I still like it. I just liked it more before the increase.

Klein Fund Selection Tool

This is a Web-based product designed for evaluating mutual funds and ETFs. What’s unique about Klein is that it allows you to create weighted factor models rather than traditional screens. Unlike a typical screening process, Klein doesn’t just deliver a list of funds that passes all tests, it allows you to score funds and then rank them. Let’s say you were searching for a large value mutual fund and you had specific criteria that you considered to be important, such as low expense ratios and longer terms of manager tenure. You might also be looking for funds with returns that have been in the top of their peer group for a given period. With a screening process, there may be a fund which is outstanding in two out of three categories, but just barely misses the cut on the third. Because it missed one screen it would be eliminated and not show up in your final list. With the Klein tool, the fund would score poorly on the one factor while well on the others. Since the tool doesn’t eliminate funds, it would still appear in the final rankings, and might still score quite well over all. In a second major difference from traditional screening, Klein’s tool also allows you to weight each of your criteria according to the importance you place upon it.

For instance, you may think the most important criteria is a low expense ratio and therefore assign it the greatest weight. You might also put lesser weight on the fund’s return versus its peers, and the lowest weight on manager tenure. The results will be adjusted accordingly. Finally, Klein provides three ways to assign weights to the various factors. First, you can apply an equal weighting to each criterion. Secondly, if you’ve already got specific weights in mind for each factor, you can simply enter them and the software will calculate your results. Finally, if you intuitively believe some factors are more important than others, but don’t feel comfortable quantifying them, the tool will do it for you by soliciting your preferences on a simple series of importance and trade-off questions, and then applying a process known as adaptive conjoint analysis to derive the actual weights. The flexibility and rigor this tool provides when searching for mutual funds and ETFs is unique.

I found the Klein help desk staffers to be very willing to take the time and answer my questions. As for pricing, individual licenses are $1,495 and corporate licenses are $8,000 per year. The corporate license allows three people to access the tool simultaneously; the individual license will allow only one user at a time. As for Klein’s limitations, you can only select mutual funds and ETF’s. You cannot create a portfolio with this tool, just select funds.

The premise here is that you should be able to select better funds than you could by screening, which is itself dependent on the premise that you are able to select the most important criteria. But which is more important, manager tenure or expense ratio? Is performance within its category more important than a fund’s Sharpe ratio? If you can answer these types of questions, you may be able to predict alpha. I do like the ranking process, though.

Summing Up

The correct solution for you will depend on many factors including the type of clients you work with, whether you work with a large company or are an independent, whether you are an RIA or work with a independent broker/dealer, and the type(s) of investments you use. In summary, it is possible that one solution alone will not provide you with everything you need and that the answer is some combination of the above. Klein may provide a better way to select funds but does not prepare portfolio reports (that’s not their niche). fi360 provides a great tool for the fiduciary, Steele Systems provides great flexibility to customize your output, and Morningstar has the broadest menu of modules. Most, if not all, of the companies have a free trial period, so do your homework before purchasing.