Long thought of as the number two player in portfolio rebalancing software, Tamarac Inc. is staking a claim to being the new industry leader.

Executives at the Seattle-based company say that their company’s development – and the size and sophistication of its RIA customer base – has taken a quantum leap in the past two years. Executives say their chief rival, iRebal, has stayed relatively stagnant since it was acquired by TD Ameritrade three years ago.

TD Ameritrade executives disagree and say iRebal has continued to evolve.

“The product has been aggressively developed over recent years, and we would welcome any opportunity to display the breadth of functionality [RIABiz plans to take him up on that offer] that continues to keep iRebal at the forefront of rebalancing technology,” says Ben Welch, director, iRebal for TD Ameritrade Institutional. See: Tech Review: iRebal thrives after TD Ameritrade acquisition

For certain, Tamarac has an edge in the number of users it serves because, with a price point as low as $10,000, its strategy was to sell to a broad client base that includes small RIAs. It has about 350 customers. Some larger customers pay as much as $100,000.

Lexus image

iRebal – which experts estimate to have about 75 users – has maintained a Lexus image by serving big prominent RIAs and charging a premium price that often exceeded $50,000, though that price was recently reduced in many cases, according to RIAs who use the software and executives of Tamarac.

As the name suggests, rebalancing software provides an automated way for advisors to adhere to a predetermined stock-and-bond balance — even in volatile markets — without going through the grueling process of making trades manually in every account.

Big practices in particular have found that the expensive software is a big labor-saver that pays for itself. The category of software is heating up among RIAs.

It’s this enthusiasm that has sparked an increasingly contentious Coke vs. Pepsi discussion about iRebal and Tamarac, according to Frank Maiorano, CEO of Trust Company of America, a Denver, Colo.-based custodian that offers free rebalancing software as part of its efforts to serve TAMPS and advisors who use model portfolios. For example, a lively debate on this subject has raged in recent weeks on the discussion board of RIAMarketplace, he notes.

Fight and argument

“If advisors weren’t passionate about it, there wouldn’t be a fight and argument between rebalancing providers,” he says.

Connor Wilson, manager of institutional sales for Tamarac, says his company’s market postion has changed because a growing number of larger RIAs are choosing to use its products.

“What’s shifted is that in the last 24 months we’ve built up a book of $500 million firms that’s as big or bigger than iRebal,” he says. Wilson adds that TD Ameritrade’s acquisition has resulted in fewer resources being dedicated to upgrading the iRebal software.

Joel Bruckenstein, one of the most prominent reviewers of advisor technology in the advisory industry, attended the iRebal conference. The publisher of Virtual Office News of Miramar, Fla. says he believes that the company is still thriving under TD’s ownership and that iRebal’s software still has an edge over Tamarac’s.

“The people at the conference – many were prominent planning firms – seemed happy with the product, the latest developments and the direction the company is headed in,” he adds.

Closing the gap

Yet Bruckenstein allows that Tamarac has been rapidly closing the gap with iRebal in recent years.

“Tamarac is infinitely better than it was two years ago,” he says. “I did not like it two years ago. I think they made great strides in the right direction. The price is lower [than it was] so you’re getting a much better product at a lower cost.”

The changes at Tamarac are translating into sales success, Wilson says.

“We don’t typically lose to iRebal anymore,” he says. “Two or three years ago, we lost fairly often. The few times we lose today are when the RIA firm has some visceral connection to iRebal through other RIAs in the same study group with iRebal users.”

He credits the 250 enhancements that Tamarac made to its software in the last two years. Tamarac’s big investor is Mark Spangler, principal of a Seattle-based RIA called Spangler Group. He invested in Tamarac through Spangler Ventures.

Matt Stroh, director of marketing for Tamarac, says his company’s brewing success can be traced to its long-term strategy of building a foundation by initially serving a broad base of smaller advisors at a lower price and — only then — developing the cash flow and experience to move upmarket.

Tamarac is winning customers by showing that it has more customers and revenues and by showing the merits of easy implementation, upgrades and maintenance associated with having an online solution. iRebal is on-site software.

RIA investors

iRebal’s approach was different. The company collaborated with and received investment capital from some giant RIAs – Balasa Dinverno & Foltz LLC of Chicago, Aspiriant [formerly Kochis Fitz] of San Francisco and RegentAtlantic Capital LLC of Chatham, N.J. Combined with the energy and charisma of its founder, Gobind Daryanani, iRebal generated buzz and an aura of leadership. Daryanani left the firm last year.

A couple of RIAs who were original investors provided a nuanced view of how the company is doing under TD Ameritrade’s ownership.

Tamarac’s enhancements need to be kept in proper perspective, says Greg Allison, director of portfolio management for RegentAtlantic. “I know they made significant improvements, but they needed to to get on a level playing field,” he says. RegentAtlantic was an original investor in the iRebal start-up but it cashed out when TD purchased it. The Chatham, N.J.-based RIA now pays a license fee for iRebal.

Another original investor, Mark Balasa, principal of Balasa Dinverno, agrees with TD that the company is continuing to maintain forward momentum, but he adds that iRebal may not have the same entrepreneurial edge that it once did as a private company. Balasa Dinverno also got cashed out of the deal by TD and now pays a license fee to use iRebal.

“There’s some truth to what [Tamarac executives] are suggesting,” he says. “It’s not TD’s core business. That’s just the reality of [being absorbed by] a big conglomerate like that.”

Increased investment in iRebal

But TD Ameritrade’s Welch said the company continues to increase investment in iRebal.

“iRebal continues to be an important and successful offering at TD Ameritrade. Each year since TD Ameritrade purchased iRebal, we have increased investment in the business and grown the staff dedicated to the product to best serve the growing number of advisors using the technology,” he says. “We maintain an open architecture to support advisors who require flexibility to select their preferred providers for portfolio accounting and other functions that are outside of our scope.”

TD has found ways to stay closely connected to customer needs, Welch says.

“We just held our annual iRebal Users Conference in Chicago, and 75% of our client firms sent at least one attendee to learn about new features and guide us in our product development strategy for the next year. Because we have such an active and forward thinking user base, we can pursue a simple strategy of delivering the functionality that they tell us is most important, and this approach continues to push iRebal ahead of the curve.”

There may be more than enough room for multiple competitors for portfolio rebalancing software.

“Only 10% [of RIAs] or about 500 advisors say they’re using it so there’s room to grow,” Bruckenstein says. “Our studies show that there’s a huge ROI on this solution.”