In brief.
- When you place an instruction with us for your portfolio, this triggers complex processes behind the scenes. The goal: to keep trading costs as low as possible.
- As an asset manager, we are obliged to provide "best execution" and don't earn a single cent on executing orders.
- Processing orders on a massive scale is only possible with the help of state-of-the-art technology. In addition, however, the manual work of our colleagues in order management remains crucial to the best possible order execution.
- Our close cooperation with Quirin Privatbank pays off.
Table of contents
- Asset management is not day trading
- Breaking it down: from your click to the securities order
- Bringing it together: "pooling"
- Placing orders
- The finale
- Conclusion
Asset management is not day trading
Occasionally clients approach us with the wish to have orders handled broker-style: namely within a few minutes or even seconds. With us it really doesn't happen quite that fast, and fortunately so: because the effort we put into executing orders takes time and represents significant added value for you. Exactly how, we describe in the following sections.
The haste on the client's side described at the outset often stems from the wish to quickly catch supposedly favorable entry or exit prices. quirion, however, emphasizes the scientific consensus that prices on securities markets cannot be predicted. Aside from a long-term positive trend, nobody knows whether prices will rise or fall over the next few days. For this reason, there is really no need to hurry. Because even though we process your orders as promptly as possible, buying securities cheaply and getting the best possible settlement prices are far more important to your investment success than an investment period extended by a day or two.
Breaking it down: from your click to the securities order
Our work begins where yours ends: if, for example, you have told us with a few clicks that you'd like to top up, our process begins with collecting the investment amount by direct debit, if you have chosen this method. Direct debits are convenient for the user, but for the banking system they are quite involved: because whether the amount we book immediately can actually be collected from the account to be debited is something we only find out one to two days after the booking. Only then can we start the order process, in your interest, to avoid expensive reversals. You can avoid this waiting period by transferring the amount to us instead of choosing the direct debit procedure.
In the next step, we forward a top-up order to the portfolio management of Quirin Privatbank, which holds your securities in custody and executes the securities transactions for us.
During this forwarding, we check and consolidate overlapping orders. It can happen, for example, that clients both top up and withdraw amounts on the same day. In addition, quirion now feeds its own orders into the order logic: because we act not only at our clients' request, but also commission transactions on our own initiative, for example to manage risk or to swap securities.
Up to now, the instruction is merely "there is money, please invest it." At the end of the process, however, it has to be exactly clear which security is to be traded, in what quantity, on which exchange and under which execution terms. This is where our algorithms come into play, which, by comparing against the ideal portfolio stored for your account (in technical jargon: the "strategic asset allocation"), calculate concrete securities orders.
For each of your securities, the software compares the currently existing weighting with the target ratio. In doing so, the program works its way from the large deviations to the small ones until the available cash is "used up." So with every securities purchase, we take the opportunity to eliminate imbalances that have arisen in the portfolio in the meantime.
At the end of these calculations there is a very long list of securities orders with the corresponding quantities. On busy days, several tens of thousands of securities orders can come together across all client orders. What's also important here: unlike private investors, we are able to buy fractions of any security, down to a thousandth of a security. Only in this way can we precisely manage your ratios even in small portfolios.
Bringing it together: "pooling"
If we placed all these orders directly on an exchange, quirion would rack up horrendous fees. Managing your assets at low cost, as well as acquiring a large number of ETFs per portfolio, would not be possible. Low fees, however, are central to your investment success, because every euro saved there benefits your return one to one. So to cut trading costs to a fraction, "pooling" follows. Here, our software combines the orders of all clients, for each security, into one collective order. The reason: the larger a securities order, the lower the order costs relative to the volume.
The following levers help us form pools that are as large as possible:
- Growth. By now quirion has outgrown its infancy and, with around €400 million in client assets under management, has established itself among the largest German robo-advisors.
- Cooperation with Quirin Privatbank. The colleagues in order management can combine orders from quirion and from Quirin Privatbank and form a joint pool. Together, we are one of the largest players among ETF-based asset managers in Germany.
- We order (only) once a day, because the more client orders flow into a pool, the better.
The pooling principle offers yet another advantage: our software can internally offset one client's purchases against other clients' sales, without having to place these orders on the exchange. Only the "order surplus" has to leave the house. This not only saves costs at quirion, but also directly ensures better execution prices in your portfolio: because exchange trading always incurs so-called spreads, meaning that a market maker, like any broker, quotes different buying and selling prices. Put simply: you buy securities a bit more expensively than you sell them. Spreads fluctuate, but for our securities they can be estimated at around 0.1 percent of the traded volume. In internal trading, by contrast, we charge no spreads; as an asset manager we would in any case be prohibited from doing so. According to our studies, we can settle around 40 percent of trading internally, a direct added value for you. Here, too, you benefit from large pools, because there purchases and sales more often match up.
Placing orders
Once the collective order has been formed, it is then forwarded to an exchange or an over-the-counter trading partner. Only at this point does the process again become comparable to that of a broker.
We are obliged to provide "best execution," that is, to seek the best price for you. As a rule, we trade ETFs via Xetra, the electronic platform of the Frankfurt Stock Exchange. Under certain circumstances, however, especially when the volume to be traded is large, over-the-counter trading partners offer better prices and are then selected by our portfolio management team.
So it doesn't work entirely without manual steps in ordering. Selecting exchanges, checking for liquidity in the instruments being traded, dealing with market distortions right up to trading halts, quality management and handling extreme peak loads are tasks that require solid human craftsmanship and years of experience.
Not all of our funds are ETFs; for a small portion we also use funds that are not exchange-traded ("ETF" stands for "exchange-traded fund"). With classic funds, you acquire your shares directly from the fund provider. Fund providers issue these shares only once a day, independently of our internal processes.
The finale
Once the orders have been placed on the market, our work is done. The systems, however, still have things to do afterward, because over the following days the orders still have to be settled for value. Likewise, tax bookings need to be triggered and notifications created for your inbox.
The final step is updating your quirion login area from Quirin Privatbank's core banking system. The communication between the systems, and thus the updating of your portfolio view, usually takes place every morning of a bank business day.
Conclusion
Automated asset management offers many advantages: a professional portfolio composition and securities selection, management of the portfolio risk, and uncomplicated saving and withdrawing are the most important points here. We can only offer these services for a very low fee, and thus in a way that boosts your return, because we can manage securities orders in an automated, cost-effective way and in large quantities. For all the automation, the day-to-day craftsmanship of our colleagues is also crucial to efficient handling and good execution prices.
Order handling at quirion therefore takes a little time, but it comes with a decisive advantage for you: execution is completely free of charge for you and often also offers better settlement prices. This is an advantage for building your wealth that should not be underestimated.
