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Utilizing Household Asset Allocation with Multiple Accounts

As available technology becomes more sophisticated, advisors must keep up to offer clients the most optimal and up-to-date investment strategies. Procedures like tax loss harvesting and drift monitoring are becoming more commonplace as client expectations for their financial advisors ramp up. Implementing household asset allocation with multiple accounts for clients can increase advisors’ value added and enhance overall visibility into clients’ investment objectives.

Account Asset Allocation Versus Household Asset Allocation

Traditionally, investment advisors have managed their clients’ investment accounts at the account level. They would apply model allocations from a variety of strategies to a client’s accounts based on their risk profile and investment objectives. A client may have taxable accounts, retirement accounts, and trust accounts. With account level management, the advisor would assign a separate allocation strategy to each of these accounts.

The term “household” generally means a group of accounts or a family of accounts managed together under a singular vision. With household asset allocations, one model allocation objective is typically applied. This means that the advisor manages a client’s taxable accounts and retirement accounts together as one. Defining a household asset allocation with multiple accounts helps advisors gain a holistic view of their clients’ investments.

The Challenges of Household Management

Advisors commonly manage their clients’ investment accounts at the account level for the sake of convenience and efficiency. Accounts are custodied, taxed, reconciled and displayed as one single entity.

Given this fact, it makes sense that accounts have been managed individually by investment advisors. It gives investment advisors and their operations teams an efficient and straightforward method for managing hundreds or potentially thousands of individual client accounts. Without such a procedure, the amount of effort and time it would take to manage all of these investment accounts would be non-viable.

As a result of this conventional wisdom, managing multiple accounts with a household asset allocation has often been viewed as cumbersome and unrealistic. It is already difficult enough for advisors to manage a multitude of client portfolios at the account level. While the benefits of managing clients accounts together in a household can usually be discerned, the inefficiency it causes for investment firms as a whole could sometimes be insurmountable.

In the past, aggregating clients accounts together in a household for better portfolio management could be a daunting task. This would necessitate time-consuming eyeball comparisons or loading various account information into separate spreadsheets. Fortunately, with modern portfolio management technology, the ability to create, manage, model and trade households are now more streamlined than ever.

The Benefits of Household Asset Allocations

It can be easy for investment professionals to see the advantages of managing household asset allocation with multiple accounts. However, there are some benefits that advisors might not even be aware. Recent technology has provided a way to implement these complex strategies at an even higher level.

A concept called location optimization can be utilized with household asset allocation setups. With household rebalancing software, systems can be configured in such a way that advisors can direct where certain types of securities will be held based on the taxable status of accounts.

This means that investors can define logic that says, for example, that stocks are preferred to be held within tax-exempt accounts while bonds are preferred to be held in taxable accounts. This could be desirable since long-term investments will generate a higher total return in stocks over time than in bonds. The tax burden clients will experience will be lower since the stocks will be held in tax-exempt accounts.

In household asset allocation with multiple accounts, all of this location logic is controlled and automated even while still adhering to the overall investment strategy that has been assigned to a client’s household.

Managing Household Asset Allocation with multiple accounts

With a sophisticated and tax-sensitive approach, advisors can explain the benefits and value that they add for their clients. An individual investor may struggle to implement and utilize such a strategy. This, of course, comes in addition to the more obvious benefits of managing accounts at the household level.

It makes sense to align clients’ risk appetite and investment goals at the household rather than the individual account level. If accounts are managed and traded in a silo, then advisors cannot easily explain their investment vision to their clients. When accounts are treated more as pieces to the puzzle rather than as the investment vehicle, advisors can comfortably manage expectations and explanations with an overall household approach.

That is not to say that family clients cannot be managed separately. It is sometimes desirable to manage a family’s children in a separate household from the parents.

The risk profile of parents is different than children, who have years of investment potential ahead of them. In this scenario, parents’ multiple accounts can be managed in one household and their children’s investment in a separate one. In this way, you still achieve a high level of sophistication of household modeling without sacrificing the advantages of separation. Household asset allocation with multiple accounts is not one-dimensional – there is room for flexibility depending on clients’ needs.

Householding with Blaze Portfolio

With Blaze Portfolio, advisors can implement and manage household asset allocation strategies with multiple accounts easier than ever before.

Blaze Portfolio’s software can make the setup and configuration of households straightforward for advisors. Household models can be configured to fit a firm’s needs while also benefiting from unique location optimization and tax efficiency features. Additionally, the cumbersome task of creating and reviewing households is fully automated.

In Blaze Portfolio, accounts flow into households seamlessly and then advisors can manage households on their own terms. Different views allow advisors to see positions and investment recommendations at the household level without losing sight of individual client accounts.

Learn more about how Blaze’s householding features can improve your offering with a personalized tour of the software.