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Wealth Advisor Case Study: Smartleaf, Transformation and Growth

A Q&A with a wealth advisor about how Smartleaf transformed their business


We talked with one of our clients about how they leveraged the power of the Smartleaf automated rebalancing system to transform and grow their business.  


Q: What did your firm look like before Smartleaf?

A: We had client-facing advisors trade portfolios. We also used a TAMP, but this setup had shortcomings. So we “deconstructed” it and built it back up, all in house. We created a central rebalancing group that replaced the TAMP, using Smartleaf’s technology for trade generation and Smartleaf’s Model Distribution Service to access third-party models. 


Q: Why have the central group taken on all rebalancing and trading?

A: We didn’t want to have client-facing personnel trade portfolios. Instead of two jobs, advisors have only one. It gives them more freedom to do their job. It also makes hiring advisors a lot easier – we’re hiring for one job, not two. 


Q: Did this save money?

A: Yes. By bringing everything in house, we more than halved our costs. Two people can handle all rebalancing and trading. The personnel is a fixed cost. Business has tripled but we have fewer people in the portfolio execution space than we had before — actually lowering fixed cost. 


Q: What about the portfolios themselves?

A: Changes in investment advice trickle down automatically. There are no “fat thumbed” trade errors. New cash gets invested immediately (this wasn’t always the case – the client would invest cash and sometimes an advisor would forget about it or never notice). Loss harvesting opportunities don’t get missed. And none of this takes more time. 


We can deliver on the idea that every client deserves the best you can give. That’s hard to deliver on. And if you can deliver that, why wouldn’t you?


Q: How do you hold up when markets are volatile, like in March of 2020?

A: For the first half of 2020, our net flows from existing clients were greater than the previous 18 months. That was during all the early pandemic craziness. 


Q: Why the increase in net flows?

A: Part of it was relational. In March, 2020, we were reaching out so much that clients were asking “why are you still calling me?” Five different waves. 1st call was how are you doing. 2nd was what we’re doing. The 3rd call was “here are the results”. All that resulted in great results – more net inflows from existing clients in six months than in the previous 18 months. New clients were hard to meet during the lockdown, but existing client flows made up for it. This was only possible because our advisors weren’t bogged down rebalancing portfolios. 


Q: You mention sharing what you were doing and the results. What did you share?

A: We were on top of it. During March, 2020, we traded 20,000 tax lots, each trade rooted in custom logic. We actively loss harvested throughout the month. By the end, realized losses were sufficient to save clients, on average, 3.5% of their portfolio value in taxes. And we showed them this with the Taxes Saved report. 


Q: So the portfolio management itself led to net inflows?

A: Yes. And I think the quality of our portfolio management is going to result in a second wave of net flows from existing customers at year end when they receive 1099s from the mutual funds that the other guy invested them in. Our clients held individual equities, not mutual funds. At year end, 1099s come out for mutual funds that were meeting redemption requests in the spring, and I think our clients are going to get crushed on the investments that are held away. Compare this with the large amount of taxes we saved our clients through holding individual equities and actively tax loss harvesting.


Q: Your processes have led to record inflows from existing clients. What about prospects? 

A: The process we have built gets people to the table. It’s a meaningful story that is more than just a story. We tell prospects and clients that we look at their portfolio every day. When they ask how it’s possible, we say technology.


Talking about process has been a win with centers of influence – CPAs, lawyers, etc. I’d guess we’ve seen a 20% - 25% increase in referral traffic. When making pitches to centers of influence, other firms talk about market conditions. When we are asked to talk about something cutting edge, we don’t talk about market conditions, we talk about Smartleaf. It’s a differentiator. It’s especially successful with CPAs. We can talk about “disciplined portfolio governance”. That “all trades are the fulfillment of a predetermined strategy”. CPAs ask for demos. We take the rules-based approach we used for planning and now use it for execution. CPAs love this story. Accountants love rules. Accountants love to save taxes. CPAs love to show taxes saved.


Q: Have you been able to expand your target market?

A: Yes. We’ve always had a robust planning process – that’s how we traditionally won business. Now we also have a sophisticated money management process built on the Smartleaf platform. And we’ll go against anyone on money management alone. The confidence is very high. 


Based on our new capabilities, we’re now on a custodial SMA platform, and when we’re working with someone on this platform, we’re just a money manager, not a financial planner. We’re not getting the client’s whole story and don’t have five meetings to learn everything. But based on our new capabilities, we win most head to head competitions. Smartleaf is a game changer. 


Q: One last question: What do you make of asset flows towards passive investing?

A: We think there’s a wave towards passive. Smartleaf lets us ride this way – lean towards passive, but actively “overlaying” customization and tax, something that clients can’t do on their own. 

President, Co-Founder