Whitepaper: Rebalancing’s crucial role in model portfolios

Model portfolios are increasingly popular among financial advisors looking to use time savings to fuel their business growth and scale their services. Rebalancing plays a valuable role in making them more flexible and dynamic as advisors demand greater customization and control.

Today’s portfolio management systems rarely come without a rebalancer that can handle drift, exceptions processing, models, tax awareness, and trading constraints while also incorporating tailored portfolios to client goals in financial planning.[2] However, independent rebalancing platforms with the required integration can offer a greater level of customization, flexibility and sophistication advisors need to serve clients with more complex needs.

Whether advisors use outsourced model portfolios, create their own, or use a combination of both, a flexible and dynamic rebalancing and trading process can help advisors respond effectively to the needs of their clients, investment managers, and portfolio managers.

The need for dynamic models and flexible rebalancing

The effective use of model portfolios can improve scale, service differentiation, and customization for maturing and fully mature practices with a rebalancing and trading process. This provides the flexibility and control to handle different client scenarios around models, strategies, and exception management.

Regardless of how firms acquire or create managed models – whether using third-party firms, building them in-house, or a combination of both – a rebalancing platform should have the ability to bring them in and have the flexibility to shift accurately and appropriately as investment offerings change.

Dynamic model capabilities are especially appealing to firms that use sophisticated models and strategies and need customization and workflows to drive greater scale across rebalancing, trading, and order management. It also makes it more efficient to build and manage a universal modeling strategy and customize clients’ retirement and tax strategies at scale.

A flexible rebalancing and trading process – that lets advisors apply changes to multiple positions in a model, a security model, an asset class within a model structure, or a specific portion of an asset class – makes mass portfolio modeling and customization at the account- or household-level a more straightforward process.

With dynamic models, advisors can create a model against any benchmark, tax-efficiently allocate assets across a complex household, apply asset location preferences, and personalize risk profiling. In addition, a rebalancing software’s capability to have model substitutes at the portfolio level allows a change to be made directly at the model level versus applying a full custom model on that portfolio, letting you scale quickly.