A portfolio accounting system is a type of software designed to track, analyze, and report the value of your investments. These systems share critical information with investors and advisors, helping them to make informed decisions as it relates to their investments.
How Do They Help With Investment Portfolio Management
A portfolio accounting system can give you — or your advisor — a holistic look at your investment portfolio. These tools accurately track and report on the value of your investments, which makes it easy to stay up to date on where your investments stand and do proper accounting to make sure there are no surprises when tax season rolls around.
Think of a portfolio account system like your budgeting app that automatically imports your transactions, tracks your spending, and reports on the value of your financial accounts. But instead of doing simple budgeting calculations, these systems do a variety of both simple and complex calculations. They analyze your investments and track their value.
Portfolio accounting systems take things one step further and track the tax consequences of your transactions. This feature makes it easy for advisors to help to manage your tax liability since they can easily track it throughout the year.
Ultimately, the goal of a portfolio accounting system is to help you and your advisor make informed investment decisions by providing you with all the data.
How Can You Use a Portfolio Accounting System?
There are many portfolio accounting systems on the market, some of which have hundreds of features. That being said, there are a few key functions this type of system can have.
Accurate Tracking and Reporting
Perhaps the most important function of a portfolio accounting system is the ability to accurately report and track the value and tax consequences of investments. This type of system tracks all transactions, serving as a historic book of records. A portfolio accounting system aggregates all of your data in one place and simplifies your tax and accounting process.
One of the most important uses of a portfolio accounting system is to find errors in your numbers. Many of us have had a situation where our checking account balance doesn’t match what we thought based on our spending. Similarly, a portfolio accounting system can help you identify discrepancies between it and other systems.
Once you’ve identified an error using the software, you can remedy it as quickly as possible. If there’s a discrepancy that needs to be fixed, it could be that an advisor failed to record a trade, meaning the tax implications of that trade also weren’t reported.
It’s important to remember that a portfolio accounting system can’t fix everything. Like other software, this one can only work properly if it’s used properly. If an advisor doesn’t properly input information and track investments, the software may come up short.
That being said, when there are errors, some portfolio accounting systems have automatic reconciliation, which can save an advisor from having to go through each transaction to find where they went wrong.
Another function of a portfolio accounting system is the ability to measure investment performance and mitigate risk. This type of software allows you to compare your returns against certain benchmarks, as well as see how individual holdings in a portfolio are performing compared to the portfolio overall.
Stay on Top of Compliance
While individual investors may not often think of compliance, it’s something that’s top of mind for advisors, accountants, and other financial professionals. These professionals are held accountable by reporting standards from the Financial Accounting Standards Board, International Financial Reporting Standards, CFI Institute, and more. A portfolio accounting system often includes an automated process for meeting these standards and maintaining transparency in records.
Report Back to Clients
It’s no surprise that clients want to be kept in the loop when it comes to their taxes and accounting. A portfolio accounting system makes it easy to create reports for clients to share information as needed. Some systems make it easy to export information to send clients, while others have a client portal built within them, meaning clients can log in any time to be kept up-to-date.
How to Choose the Right Software
There are plenty of portfolio accounting systems on the market, and finding the right one for you can be challenging. The most important thing to consider when choosing a system is which features you really need.
It’s easy to get caught up in the flashy features and visual platforms that some companies offer. But if a system doesn’t meet your most basic needs, it won’t work for you.
It’s also important to choose a platform that doesn’t offer too many features. A platform that has tons of features isn’t necessarily a perk if you won’t use them all. In fact, too many features can make the platform more difficult to navigate. You want a system that offers the features you need without too many others you don’t care about.
Portfolio accounting systems are used by companies and financial advisors to track, analyze, and report the value of investments. While it can be a valuable tool for financial professionals, it may not be useful to an individual investor. The good news is there are plenty of tools that are.
The Personal Capital financial dashboard offers plenty of financial tools to help you with your short-term and long-term financial planning. The investment checkup tool allows you to see all of your investments in one place and helps you analyze past performance, assess your portfolio risk, get a target asset allocation, and more.
Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.