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Rebalancing client portfolios – is there a way to achieve efficiency?

Jenny Davidson

Jenny Davidson, Head of Platform Investment Management, at Standard Life considers mechanical rebalancing as a practical solution for advisers looking for efficiency when rebalancing their clients’ portfolios.

Model portfolios have a defined set of funds and asset allocation which is designed to match investment needs and risk profiles of investors. Whether an adviser is looking to create their own and/or outsource to an investment professional will depend on their business model. Finding the right platform which provides the breadth of technology and reporting solution is crucial to ensure efficiency. It’s acknowledged that the platform which can distinguish between model portfolios offered on an advised basis and those run on a discretionary basis ensuring both parties are able to manage portfolios efficiently within their regulatory permissions is the ‘gold’ standard.

If we look at model portfolios on a discretionary basis, the investment manager can just make the change whether this is to the asset allocation or the actual investment composition.

Advised firms acting on an advised basis will need to go back to their clients following a quarterly investment review and discuss the changes to asset allocation it wishes to make obtaining the clients consent before applying the change. But is there another way for advisers that we have completely ignored as an industry ….’mechanical rebalancing’?

Mechanical rebalancing is a term that has been around for a few years. It makes sense and is a practical solution for an advisory firm looking for efficiency and who provide clear commitment to their clients that they will rebalance their portfolios at pre-agreed dates. No discretion is exercised, no discrete charge applied or any change to fund selection. It is as simple as it states, mechanical in that technology allows the adviser to rebalance clients that have pre-agreed to be rebalanced at pre-agreed dates back to the pre-agreed asset allocation. So is there a catch?

No there isn’t a catch. So long as you understand and accept the limitations and it is fully explained to your client through your client agreement. Obviously, you’ll need to square this away with your Compliance team but it could just mean that you will be able to scale back on the number of emails to your clients which state the same thing.

Put simply, it’s just like a new car being finely tuned before you take it out on the road. After a period of time you take it back to the garage to recalibrate the engine, steering and tyre pressure to make sure it is as efficient as it was when it came out of the factory. No fundamental changes are being made simply just re-tuning to get it back to its optimum capability. No additional charge levied it is just carried out as part of the service plan you pre-agreed when you bought it.

Sometimes, we just need to look beyond the complexity and think more simplistic.


The views expressed in this article are those of the author and not Standard Life. Standard Life accepts no responsibility for advice that may be formulated on the basis of this information.