Investing: It’s a (re)balancing act

Like a well-oiled machine, your clients’ portfolios require some routine maintenance every now and then. Whether that means buying or selling assets or making other investment decisions that directly affect their portfolios, exploring bold, creative ways to empower their investments is key to fostering a healthy financial strategy.

Rebalancing portfolios can help.

As the economy evolves over time, some of your client’s assets may become more valuable than others, possibly hindering opportunities that may help their overall investment plan. Rebalancing can help diversify their financial strategy by reprioritizing the weight of the asset classes in their investment portfolio. The payoff? It can add worth to your clients’ investments and open up new opportunities for them to attain more wealth.

It’s a delicate process that should be handled with care. Let’s take a look at a few challenges that advisors run into when rebalancing for their clients.

Communicating the benefits to clients

Many clients are reluctant to rebalance their portfolios at first — it can be daunting to move allocations around without knowing the outcome it may have on their portfolio. Educate your clients on why a rebalance may be the right investment move and communicate how it can help their portfolio grow over time. This can help alleviate their anxiety and manage their behavioral biases, like wanting to keep investments that have performed well in the past.

Addressing market volatility

Volatility in the market yields stagnation in investment decision-making. Traditionally, investors make more conservative financial decisions when the economy is unpredictable. While the risk of inflation and rate hikes loom on the horizon, investors want to feel like they are doing all the right things to preserve and grow their wealth. It’s fair to be hesitant during a shaky economy, but those who sit back might miss out on opportunities to position their portfolios for what’s next. No matter what direction the market is headed, it is always a good idea for investors to look at their portfolios holistically and consider rebalancing to better meet their goals.

Working within time constraints

One of the main challenges advisors hear from clients considering rebalancing is the amount of time it can take to complete the process. It can be a lengthy process with limited resources for guidance, so the logistics often turn investors away from the idea. With that being said, it’s important for advisors and their clients to put time aside, so they can review the portfolio in question together and find new opportunities for growth. 

Managing tax implications

Another factor to consider is the potential for tax implications. These can vary in size but investments with significant capital gains can have substantial ramifications if you are not careful. On the flip side, some accounts are more “tax efficient” and can actually lower the tax impression of your client’s portfolio in some instances. What’s important to remember is that although there may be a tax burden associated with rebalancing, it can help reduce the overall risk profile of your client’s portfolio and help them plan ahead with more confidence.

Mitigating implementation costs

Expenses associated with rebalancing depend on the extent of changes the investor wants to make. Costs can range from administrative processing fees to bid-ask spreads. While some of the processing fees are unavoidable, bid-ask spreads vary for each asset, as they are the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept. The spread can change depending on the liquidity of the market, the volume of trades, and the volatility of the asset, but they are hard to avoid altogether. Working closely with the investor can help you determine an appropriate spread for each asset and when it may be a good idea to spend a little more.

The pros outweigh the cons

We just covered a lot, but let’s not get lost in the sauce. These challenges do exist, but they are by no means a justification for omitting rebalancing altogether. The benefits of rebalancing far outweigh the headache of completing it on the backend. Rebalancing can help an investor gain perspective on their investments, diversify their portfolio, and practice healthy financial habits by engaging directly with their investment strategy.  

Rebalance with intelliflo redblack

intelliflo redblack is an award-winning rebalancing and trading solution that helps you easily manage your clients’ portfolios on one simplified platform. It’s highly intuitive and scalable to your clients’ needs, saving you time on the backend and helping you educate your clients on the benefits and risks of rebalancing. With complete visibility into their financial landscape, you can help guide them to make better investment decisions and help them create the financial future they want.

It’s efficient. It’s streamlined. It’s investment management made easy.