In the worst economy in 75 years, the challenge of asset allocation for a given portfolio has never been greater. But that doesn

In fact, accountants and financial planners list this as one of their top three challenges in managing client portfolios - the difficulties of selecting not only the right asset mix, but also the specific asset classes and products to fill that mix.

It is not necessarily that this is a mystical or black art, but it does come with some new terminology and a few new concepts to master, including:

* Modern Portfolio Theory, or MPT. This is a mathematical formulation of the concept of diversification in investing, with the aim of selecting a collection of investment assets that has collectively lower risk than any individual asset.

* Multi-period mean variance. One of the criticisms of MPT is that it studies assets in only one period, resulting in lower returns over the life of the asset because it fails to consider longer-term ramifications and the necessary adjustments in the portfolio. Many software packages consider this factor, as well as straight MPT.

* The Efficient Frontier. Every possible asset combination can be plotted in risk-return space, and the collection of all such possible portfolios defines a region in this space. The line along the upper edge of this region is known as the Efficient Frontier.

* Gaussian distribution. In school, this was known as a "bell curve." And one of the criticisms of MPT is that it fails to conform with Gaussian distribution, so some software packages throw in the "bell curve" for good measure.

The nine software packages included in this roundup generally qualify as the best in the marketplace, but may vary widely, not in their basic functions as much as their orientation - some to sophisticated analysis, others to tax ramifications, still others to an expansive study of the historical and current data on the assets available for selection. Still, all hold some strong appeal for accounting firms, and should be considered among the asset allocation utilities used in portfolio management.


Sungard Online Investment Systems

Irvine, Calif.

(949) 743-6363

Pricing: Initial license fee - $495.00; quarterly update fee - $99.

AllocationMaster debuted in 1991 as the first Windows-based asset allocation software for the PC. Initially based on portfolio analysis concepts used by large endowment and pension funds, the software has evolved through an unusual practice of quarterly updates.

This has enabled AllocationMaster to respond more rapidly to evolving theories of allocation, and to quickly integrate capabilities that include tax analysis as part of the portfolio optimization algorithm; the combination of asset allocation and financial forecasting; and an asset classification system.

The assumptions portion of the software is straightforward, providing a recommended set of asset classes that can be easily tailored to the needs of the client. Up to 40 years of historical performance data is provided for over 100 market indexes and mutual fund averages, covering all sectors of the capital markets back to 1960 or their inception. Risk/return estimates provide an estimated future performance measure for each class as well.

Client profiling is straightforward as well, covering the client's goals, current asset positions, cash flows and risk tolerance. The portfolio optimization engine handles the complex mathematics of Modern Portfolio Theory, and there is a Monte Carlo simulation engine to project future investment returns. Recently added features include Section 529 Plan asset modeling and concentrated stock position modeling.

AllocationMaster is a straightforward, easy-to-use allocation system that is both economical and practical for the small accounting office. The company's quarterly update mechanism provides for constant evolution of the product, and the software includes fundamental support for the creation of financial plans that help to boost its value, especially for smaller accounting firms.

Asset Allocation Analyst


Montréal, Que.

(866) 790-3141

Pricing: Contact vendor.

Asset Allocation Analyst is a sales-driven allocation tool designed to integrate information and research data in order to serve the mass, mass-affluent and high-net-worth segments of the financial advisor client market.

The product is Web-based, and can be customized to the needs of the individual firm in terms of site branding and output. It provides portfolio construction, monitoring and rebalancing in a single solution, with access to over 30 Fundata and Morningstar Global data feeds (mutual funds, equities, exchange-traded funds, separately managed accounts, hedge funds, etc.), information on over 100 foreign currencies, and access to more than 40 analytical statistics using traditional as well as probabilistic Monte Carlo simulation.

The availability of the data feeds, combined with a Fund Factsheet generator, enables you to produce your own branded fund fact sheets in English, French, Spanish and Arabic.

Depending on the client situation, the software offers tools for a quick proposal, maintenance of multiple financial objectives, the creation of a prospective portfolio, and the necessary tools and calculators. An Investor Decision Grid and investment policy statement help to guide the allocation process, with data imported via links to most major back-office systems in the market. Asset Allocation Analyst provides for correlation analysis, Efficient Frontier analysis as part of Modern Portfolio Theory, professional-quality PDF reports, customized asset mix recommendations, and the ability to rebalance the portfolio.

Although more clearly geared toward life insurance firms than accounting firms, Asset Allocation Analyst has some strong appeal for its Web-based format, the quality of its client reports, and the simplicity of its Investor Decision Grid. It is also strongly compliance-oriented. Its single drawback for accountants is that, since it is sold exclusively through partners, the pricing can be variable.

VisualMvo, MvoPlus and MCRetire

Efficient Solutions Inc.

Ridgefield, Conn.

(203) 744-4023

Pricing: VisualMvo - $89; MvoPlus - $169; MCRetire -$29.

Efficient Solutions Inc. offers a low-cost solution to provide MPT asset allocation services through mean-variance optimization.

Like other low-cost offerings, the company's three products are designed for both investment professionals and sophisticated personal investors. VisualMvo is a single-period mean-variance optimizer designed to construct the Efficient Frontier. MvoPlus offers additional "constant ratio asset allocation" strategies, and also functions as a conventional single-period optimizer, or as a back-tester and optimizer of historical data. MCRetire is a Monte Carlo retirement simulator that takes into account the fluctuations in investments.

Certainly, there are few bells and whistles included. VisualMvo runs under Windows in both 32-bit and 64-bit versions, and can compute the Efficient Frontier for up to 20 assets, with simple constraints on each asset, and up to 26 portfolios. Reports are simple on-screen graphics or the export of data to a text file for assimilation into another report.

MvoPlus is an additional tool that will be necessary for most accounting firms, as the basic MPT approach to asset allocation assumes an expected return in a single period, rather than the return that may be expected over multiple periods. MvoPlus has all of the features of VisualMvo, but adds the ability to optimize for true multi-period (geometric mean) returns on a rebalanced portfolio.

Straightforward and bared to the essentials, the Efficient Solutions product line nonetheless offers two things that may appeal to allocation-savvy accountants - high value for the money and the ability to do asset allocations in the most flexible and simplified way. It is not an approach for every accountant, but it is the most utilitarian approach.


Burlington Hall Asset Management Inc.

Hackettstown, N.J.

(908) 637-8694

Pricing: 12-month license - $20,000. Each additional (up to five) - 25 percent of base.

DynaPorte takes a revolutionary approach to asset allocation, building an allocation and optimization program that takes into account the seasonal variations in assets and providing the roadmap to work around seasonal declines. Factor models are constructed that control asset allocation changes for all investments simultaneously. The impact of transaction costs and any borrowing to leverage the portfolio are included in the portfolio optimization model. Dynamic portfolio optimization results from changing allocations to each investment to avoid the worst-loss months and target the highest-gain months.

DynaPorte (for Dynamic Portfolio Optimization) uses a database of macroeconomic and market factors considered to influence markets, along with other factors identified by the financial planner as important. It employs a stepwise regression model to test the impact of multiple factors on the investment returns; builds dynamic asset allocation models based on any time interval and evaluates the model on an out-of-sample basis; simulates the future impact of assumed factors on performance; and generates reports and graphs to demonstrate the effectiveness of the constructed model.

Four tools provide additional capabilities to the asset allocation system. The Report Generator offers customized reports on factors and investments using selected quantitative and descriptive data fields. In addition, it offers a statistical report of 18 performance factors on a specified date range. A New Factor calculator uses standard mathematical operators and specified time lags. A "Convert Monthly to Quarterly" function mixes data with different frequencies. And the Time Graph Generator provides a view of how the factor has changed over history, printable as a graphic file.

DynaPorte takes a very different approach to asset allocation, but this may be useful for firms wishing to differentiate themselves from competitors using a standard system of allocation. The price tag is steep, but that is not unusual for ground-breaking software.

Morningstar Office

Morningstar Inc.


(312) 696-6000

Pricing: Morningstar Office - $5,400 per year. Principia Suite - $3,345 per year with monthly updates. Module pricing - varies.

Morningstar Office (formerly Advisor Workstation Office Edition) is a comprehensive investment planning and portfolio management platform for financial advisors and wealth managers. Morningstar Office features the most current Morningstar research and data on more than 270,000 securities, sophisticated investment planning tools, an embedded portfolio management system for import, reconciliation and performance reporting capabilities, practice and client management tools, e-mail and calendar functions, batch reporting, a client Web portal, and Securities and Exchange Commission document archiving. Morningstar also offers optional back-office services so advisors can focus on building their businesses, leaving the daily import and reconciliation chores to Morningstar. Its practice management tools are designed for use by both the sole practitioner and multi-advisor firms.

Morningstar Principia is a modular-based resource, with optional databases that include mutual funds, stocks, variable annuities, closed-end funds, separately managed accounts, and exchange-traded funds. Advisors can conduct advanced research and analysis, monitor portfolios, and propose investment strategies.

New in 2009 is the Presentations and Education module, which features a research-based presentation on investor behavior. The presentation uses graphs, charts and data to explore how perceptions or emotions impact investors' decisions. It also includes strategies to help clients cope with near-term fluctuations and address the volatility of the market in a rational and productive manner.

Morningstar's Office is flexible, customizable and generally considered to be one of the best financial planning, asset allocation, testing and reporting packages in the marketplace. The package price reflects this prestige position, but is not prohibitive for the small accounting firm.


Financial Tapestry

Exton, Pa.

(888) 427-1550

Pricing: $700 per year.

SAGE (for Simplified Allocation Generating Engine) is a Web-based client-profiling and proposal-generation system designed to offer both an appropriate asset mix and to perform Monte Carlo simulation to produce a tailored investment strategy.

SAGE performs both traditional risk-based profiling and Monte Carlo simulation-based analyses, then reconciles the two approaches. Taxes, account fees and commissions are factored in to the analysis, and the system generates a customized proposal with an appropriate mix of investment products. The Monte Carlo Financial Simulation offers a full-featured goal analysis using a myriad of account types and tax treatments, as well as various account fee and commission types.

For more robust client proposals, Financial Tapestry offers Quick Proposal, which allows the accountant or financial advisor to input an asset allocation and rapidly generate an NASD-compliant proposal describing the historical performance and risk characteristics of that allocation. It handles an unlimited number of cases, calculating historical performance and risk characteristics on any allocation up to 15 asset classes. Any two portfolios can be evaluated simultaneously, which is useful in comparing a client's existing portfolio with a suggested allocation. Quick Proposal includes many different asset classes and investment styles, providing a historical perspective over a time frame greater than 30 years.

SAGE is in the mid-range of basic asset allocation tools, but does offer flexibility for the accountant in asset selection and comparison using the two most common approaches. This simpler approach is useful for accountants who understand asset allocation and don't wish to pay the premium for features they do not need.


Windermere Investment Associates

Portland Ore.

(503) 228-3941

Pricing: Portax - single user, $4,500; each additional, $500 per. Portax Plus - single user, $6,000; each additional, $1,000 per.

Portax is a Windows-based after-tax asset allocation software program that optimizes portfolio composition using multi-period mean-variance analysis from Modern Portfolio Theory.

What makes it unique for accounting firms is its focus on tax-aware asset allocation analyses for their clients. Most optimizers based on MPT operate without consideration of taxes, ignoring an investor's unique tax status and assuming a single-period investment horizon. This manner of pre-tax optimization results in portfolios that, although optimal in a world with no taxes, are highly tax-inefficient and suboptimal for taxable clients.

There are two versions of the software: Portax and Portax Plus. Both feature multi-period after-tax optimization of up to 100 assets and 120 periods. Portax features streamlined inputs, quicker analysis and faster turnaround on client reporting. Portax Plus is a more sophisticated version of the software, allowing for the simultaneous modeling of multiple sub-portfolios (with differing tax status and estate planning functions), while optimizing the portfolio on an aggregate basis. This optimization feature is useful in estate and financial planning, allowing for the analysis of trusts (CRTs, GRATs, IRAs, etc.) in conjunction with a client's entire portfolio.

Portax Plus, the version that is likely to appeal to accounting firms, carries an upper-range price tag but accommodates scenarios that are more likely to occur with clients of an accounting firm. That puts it near the top of the list for firms looking for new software options.


Modern Investment Technologies


+7 (985) 233-6156

Pricing: Corporate license (one machine) - $5,999; individual license - $599.

The software development labs in Russia have, in the past decade, begun to turn out superlative products. SmartFolio 3 is no exception - a state-of-the-art asset allocation and portfolio optimization system that tackles the problems of quantitative portfolio management: parameter uncertainty, non-normality of returns, and uncertainty in investors' preferences.

It offers a practical means of performing asset performance ranking, portfolio optimization, Efficient Frontier construction, analysis of portfolio risks, analysis of target shortfall probabilities, and the minimization of transaction costs that arise during rebalancing. It supports the multi-period investment paradigm, as well as portfolios featuring assets with non-Gaussian distribution of returns or non-linear interdependencies, including options and hedge funds.

The analytical methods adopted include the Black-Litterman model, several Shrinkage Estimates, Robust Optimization, Walk-Forward Optimization, Target Shortfall Probability Minimization, and many others. SmartFolio combines highly advanced and innovative analytics with a user-friendly, intuitive interface, well-suited to differing levels of expertise and experience.

SmartFolio is technically and analytically one of the best asset allocation systems on the market, but it is not particularly for the novice financial planner. More sophisticated accounting firms will appreciate its strong foundation and technical expertise, but small firms - in spite of the relatively low individual pricing - may find it too powerful for their use.

Windham Wealth Advisor

Windham Capital Management

Cambridge, Mass.

(866) 533-5529

Pricing: Annual license - $6,000; quarterly - $1,500.

The Windham Wealth Advisor is a Web-based system that provides a comprehensive approach to portfolio construction and wealth planning.

The software enables financial planners, financial advisors and family offices to perform forecasting, asset allocation and risk management. Users are able to easily identify efficient portfolios, manage portfolio risk, project future wealth, and prepare customized client proposals. In particular, the asset allocation portion of the software allows the planner to identify multiple optimal portfolios based on a client's specific objectives, constraints and tax rates. Windham's platform applies a technique that simultaneously considers a client's aversion to loss and aversion to underperforming a specific benchmark. Existing and proposed portfolios can be evaluated based on these absolute and relative performance measures.

Windham Capital Management's Wealth Advisor differs from others in the field in that it focuses specifically on the analysis of asset behavior during periods of market turbulence, incorporating estimates of a portfolio's exposure to loss through a given investment period, based on both analytic measures and Monte Carlo simulations.

Accounting firms will particularly appreciate this approach in the current environment, but may find it equally of value in bullish markets as the economy begins to show signs of recovery.

Dave McClure is the president of Kent Associates, in Alexandria, Va., an independent testing laboratory and evaluation service.

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