When starting out a new client case, our team at FA Solutions is always asked a lot of questions about the product and how it can make business processes more efficient. We have decided to publish the best and most popular questions, along with our answers to them. Hopefully, you find it useful, and please don’t hesitate to reach out to us directly if you’d like to discuss them in more detail!
How can the FA Platform help my company build a successful robo advisory?
- Client onboarding
- Portfolio Rebalancing
Robo advisory top features
The key to any successful robo advisory is acquiring clients and having a remarkable technology stack enabling clients to invest in the market effortlessly. FA Solutions cannot comment on what strategy is best at acquiring end clients for a robo advisory, but we do have an outstanding technology stack with solutions for the back, middle, and front offices all the way to white labeled end client environments. From the FA perspective, there are three main components that help to build a successful robo advisory. Those are an easy-to-use client onboarding process, flexible integration capabilities, and various ways of rebalancing the portfolios and models.
The FA Platform is comprised of two environments using a single database – FA Back and FA Front. FA Back is the core of the platform with most of the computation power. FA Front has been designed to be used by end clients, client advisors, or as a CRM.
When a discretionary asset management company is onboarding a new client, they need to go through a KYC questionnaire and AML checks. This process is used to determine the risk appetite and investing style of the end client. With FA Front this process is digitalized and is used to allocate their investments according to the responses. FA can completely customize the KYC questionnaire in terms of questions asked, UI, and language. The answers to these questions fill out a matrix which can be configured to suggest different model portfolios for different risk appetites. All of the information is synced in real time with FA Back, where the portfolios are managed.
KYC questionnaire welcome screen
After the KYC information has been submitted, their identity has been confirmed and they have gone through an AML check, the clients are able to start investing. Through our partnership with Signicat, FA Front is able to read different kinds of ID cards, such as a passport or a driver’s license, which will then be saved under the contact in FA Back. At the same time FA Back can submit the verified identity through an AML check. Leveraging the technology of Trapets, the ID is screened against sanctions lists and PEP lists.
FA Solutions can make a short and simple onboarding process or an all-encompassing onbarding process. There can be only a couple KYC questions or tens of them. AML can be checked or skipped. New clients can be asked to approve documents using an online authentication or digital signature process. Typically, the local regulations determine how easy or complex the process needs to be. FA Solutions has experience in both.
An investing algorithm is only as powerful as the information it receives and how it can react to that data. In the FA Platform we have a vast API library for communications between FA and other third parties. We also support the use of FTP, SFTP, SWIFT messages, FIX engine and CSV import/export.
Using the FA APIs, we are able to integrate with all relevant third parties for a Robo Advisory. The most crucial of these are bank and custodian connections, market data providers, and trading venues or brokerages.
When integrating with banks or custodians, FA can easily manage the incoming and outgoing data in order to automatically reconcile accounts, settle trades, or read in transactions for example. FA Back can connect to multiple different banks and custodians simultaneously to comprehensively manage how your files are transferred. FA’s bank and custodian connections are available from fully automated secure FTP connections to semi-automatic approaches and support for multiple standard file formats towards different banks and custodians.
For market data, FA Back connects with global market data providers to automatically receive market prices and comprehensive instrument reference data, thus keeping your position valuations and instrument data always up-to-date. You can connect to multiple different market data providers simultaneously and flexibly fetch the data you need. When creating a new trade order FA can pull the newest price available from the source and send the order to a trading platform as a market price or limit order.
For robo advisories, the trading aspect of the business is top-of-mind for their end clients. Connecting your trade order management to your trading platform removes manual work and possibility of human error. FA’s Trading Connector automates your trade order management by sending orders to your preferred broker through your electronic trading partners. You can thus monitor the status and execution information of your trade orders in real time using FIX messages.
Trade order API
Another key to robo advisories is to have a limited number of portfolio or asset managers. However, each asset manager can only actively manage a select number of portfolios by him or herself. That is why rebalancing hundreds of portfolios with only a few clicks is vital for robo advisors, whether or not they are investing according to a model portfolio.
Within the FA Platform we have different ways of rebalancing portfolios. A portfolio can be rebalanced against a model, against an individual investment plan, or the portfolio itself. In any case we can prioritize the hierarchy of what a portfolio is rebalanced against. This hierarchy will first check if there is an individual investment plan for the portfolio and then rebalance against that. If there is no investment plan the FA Platform will check if the portfolio is allocated to a model portfolio and rebalance against the model. If there is neither then the platform will rebalance using the current holding percentages and allocate the surplus cash against those percentages. This allows individual rebalancing and mass rebalancing at the same time, which in turn allows an asset manager to cater to a single client and thousands with only a few clicks.
Another useful feature for a robo advisory in the FA Platform is automatic rebalancing. FA automates rebalancing through the use of different triggers. Rebalancing can be triggered by a schedule, from an event, or a rule. Having a scheduled rebalancing will rebalance all of the portfolios that are associated with the schedule at different time intervals, daily, weekly, monthly, quarterly, or something in between. An event trigger rebalancing is for example when a deposit has settled in a client’s account it will be invested as soon as possible. Another example would be if a portfolio manager tags a security as ‘sell everything’ this automatically generates sell orders for all of the portfolios holding that position.
A rule triggered rebalancing can be configured for various uses depending on what our clients would like the outcome to be when the rule is broken. For instance, if a major index drops 10% in a single day it would trigger the selling of all equities. Or if the allocations limits on a model are breached, that can trigger the rebalancing of the model and the portfolios linked to it.
Along with the features of rebalancing there are parameters for how to rebalance, such as a minimum trade amount, including fees and other elements. Schedule a demo to find out what the other elements are.
FA Solutions has launched several successful robo advisories in different markets and countries. Our Platform is flexible, with no hard-coded components, allowing us to configure and integrate it for any use. We have over 500 years of collective experience in finance and IT within the company. Our offering is the full technology stack that is needed to launch a robo advisory from model portfolio management to clients viewing their holdings on a mobile app.
Check out one of our public references, Kron – a Norwegian company that built a successful Robo-Advisory to help their clients save and grow their funds.