Success Story

Chesney & Company Private Wealth Management

Taking the Fast Lane to SEC Compliance

For Chesney & Company, Only Tamarac's Customized Trading Can Do the Job

Sheila Chesney has a keen eye for detail-just about nothing escapes her attention.

She wouldn't have it any other way.

The founder and principal of Chesney & Company Private Wealth Management, a small, independent Registered Investment Advisory firm based in Sheldon, South Carolina, Sheila has built her business on her financial analyst skills and her temperament for embracing change.

As an active portfolio manager, she depends on understanding trends and anticipating moves well ahead of the curve. Her portfolio of loyal, high net worth clients is a testament to her success.

For Sheila, it's all about finding an edge in every aspect of her work. And that includes finding and using technology. With 25 years at IBM behind her, she is not afraid of technology. Far from it-Sheila embraces its benefits.

"Technology is cheap-I take advantage of that and it gives me a competitive edge," Sheila explained. "As I built this business, I was always looking for ways to use technology for productivity gains. We're a small shop but we subscribe to a Bloomberg terminal, we have a T1 line which we are upgrading to a T3, we are paperless and we have Tamarac."

Created by Seattle-based Tamarac, Inc., Advisor® is a fast, web-based Investment Strategy Management Platform that automates portfolio rebalancing, cash management, and directed trading.

Advisor allows Chesney & Company to offer a broad portfolio of management services, from equity and debt to private partnerships and managed futures. Their asset allocation strategy includes diversification over five asset classes: about 50% equity, 10% bonds, 15% real estate, 10% commodities, and 15% hedge (absolute return) funds and each clients' implementation is unique.

And with Tamarac comes time, that elusive but vital element that gives Sheila the ability to go deep into market trends, analyze market activity, and make the right call for her clients.

Run Active, Run Deep

Sheila serves about 45 clients, high net worth business owners and professionals, who were attracted to the high-service firm's depth and breadth of offerings. "What you typically run into with wealth management is a high personal touch model, but that practice can be sharply limited in services they're providing to the client if the back office is inefficient," said Sheila. The firm's fee structure is based on an annual retainer plus an asset management fee.

"I actively manage the U.S. equity side of the portfolio. I decide what I want to buy and when I want to sell it. We're also very globally oriented." The firm's overall portfolio is split in thirds between the U.S., developed, and emerging markets, with equities spread over the U.S., Europe, United Kingdom, Japan, Pacific, and Emerging Markets. "We buy at a discount, so pricing matters. What happens on a given day in any market is very important to us."

That's where Advisor comes in. The technology supports the whole universe of securities that Sheila needs to track and move in, including stocks, bonds, mutual funds, ETFs, ADRs, preferreds, and alternative investments.

"Look, it's just like buying insurance," Sheila added. "You constantly have to decide where to offload risk. In a business like ours, I want to know where I can offload advisor time to technology so we can put time to making the best choices. If any action has a skill set that isn't easy or is inexpensive to acquire, I want to know if there's a technological solution."

In the Market for Compliance

Sheila has an aggressive objective of having $1 billion in assets under management within the next 10 years. To make ready, Sheila took stock of her infrastructure: "If you're going to grow, then you have to look at your weak links. One of ours was the trade process."

Not having a large number of clients, Sheila said, the burning issue wasn't capacity so much as the possibility of inadvertent mistakes. "There were too many opportunities for someone to touch it and make a mistake, or not touch it and miss an opportunity. Advisor takes the error risk out of a trade."

After trying Schwab's rebalancing software, she didn't find it adequate to meet her needs. About half of her portfolio is invested in private placements, not tradable entities, creating scenarios that the existing platform couldn't encompass.

"Client A might be a small investor, 40% in equity mutual funds, 60% in bonds, but Client B could be all individual bonds, stocks and private partnerships, while Client C holds private equity, debt, oil and gas partnerships, managed futures-every one of our clients is very different," explained Sheila. "I knew that I needed to automate the process, but I needed software robust enough to deal with the breadth of our offerings."

Someone at Schwab mentioned Tamarac, and Sheila began to research the company and the product. She spoke with the Tamarac team, who provided her with client references. "What appealed to me about the Tamarac users I spoke with is that we were on the same page. We were willing to put the time and energy into learning a new software product if the payoff was there. One of them told me, 'If you are willing to do that, you will make this product sing,'" recounted Sheila.

"I worked with Advisor every day. For the first few months, by myself, then our analyst, Lisa McFee, joined in. Having someone to compare notes with really sped up the process."

You could say the rest is history, but that wasn't the case. Sheila approached her purchase with a due diligence that showed a deep seated understanding of technology and a respect for the bottom line that any small business owner would envy.

From the standpoint of SEC compliance, "getting trades automated was a no-brainer. Now, we run the optimizer all the time, looking through all our accounts to make sure we're not missing anything." The software provides snapshot views, and detailed reports on holdings, compliance, and tax implications, a feature that Sheila describes as "vital."

Sheila hires a compliance firm to audit the firm annually. This year is the first time they will see all trades processed through Advisor. Sheila is looking forward it.

"I want to see what their response is-I expect them to look at our trade process and say 'I don't think anybody from SEC side could ask for more.'"

Redefining What It Means to Be "Feature-Rich"

For Sheila, Tamarac's web-based aspect is integral to her practice. "We have our document management system on a server. After an executed trade, we output the trade order onto the server, client administration-based in Texas-confirms it and makes notes in the contact management system. With Advisor, I can even see training our administrative support to execute trades-faultlessly-while we apply the brains to the business. We like to do research; I will offload trade execution if I can."

Tamarac's focus on tax effects, the software's automated screens of trades, looking for tax penalties and benefits, struck a chord with Sheila. "The four key areas affecting our clients are wealth enhancement, wealth transfer, wealth protection, and charitable giving," she said. With her high net worth clientele, it's crucial for her to find the most effective tax effects when trading.

Provided with an allocation model, Tamarac can factor in tax efficiencies, client preferences, risk tolerance, and restrictions on legacy positions. Tamarac includes the ability to automate margin positions (including separate margin and non-margin cash positions in the same account) and family account reallocations-via three different methods.

Improving on the Human Touch

Chesney and Company is a virtual business. Sheila lives and works 45 minutes from Hilton Head.

Besides Sheila, the office is populated by Associate Analyst Lisa McFee and Chesney's three Labrador retrievers.

The rest of the company, namely her step-daughter, telecommutes from Denver. Client administration is in Dallas; all other services are outsourced.

Given the company's virtual nature, Sheila's team appreciates that Advisor is a Web-based application that's as close as the nearest Internet connection, and upgrades itself without an IT department running from workstation to workstation.

Chesney and Company stands out in the wealth management field as a woman-run and staffed business. "The financial sector has been 80/20 male forever," said Sheila, "even if you just look at high net worth clients, most are successful men. But I keep the playing field level by being open to technology."

To Sheila, technology isn't about nice-to-have gadgets. For her it's about opportunity gained or opportunity lost. As a rule, she favors gains and she has seized technological advances that have transformed an archaic past to a streamlined, efficient present where she and her staff are freed to work with their clients closely and to give them the service they demand and trust.

"You just can't be successful without a technological edge," summed up Sheila. "In my view, Advisor is the kind of foundational product that a financial practice today can't do without."