Over the years, BlazePortfolio COO Joe Tabak has noticed that some advisors have a knack for getting the most out of their portfolio rebalancing tools. “For instance, we had a new advisor come on recently who was particularly taken with our householding functionality, something they hadn’t had access to previously. They were able to manage client assets at a higher level by assigning asset allocation strategies to the all of their clients’ accounts, whether they were a taxable brokerage, IRA or 401(k) balances,” Joe noted.
Taking the broadest possible look at a client’s total assets is among g the best practices for portfolio rebalancing, and is particularly powerful when it comes to asset placement, for instance, allocating high-yield taxable instruments into a tax-advantaged account. This is just one example of the power of comprehensive portfolio rebalancing software.
Best Practices for Portfolio Rebalancing
Here are three best practices for portfolio rebalancing from experienced users who take advantage of using portfolio rebalancing software:
1) Rebalancing portfolios by opportunity, not by calendar.
Traditionally, rebalancing was something that advisors or investors looked to accomplish at the end of the year, or if they were particularly diligent, quarterly. For instance, tax selling would be put off until December. Tabak explains: “We brought in an advisor recently who was able to leverage our drift analysis, which will flag an opportune time to do a rebalance. This can be particularly important during periods of high volatility when that volatility is concentrated in certain sectors or asset classes.” BlazePortfolio drift analysis can be used to designate thresholds on the asset classes or sectors in an advisor’s model. Once these thresholds are hit, the software can be used to trigger efficient portfolio rebalancing.
2) Using technology to scale portfolio rebalancing trades.
One of the challenges for advisors in the past was the logistical problems around managing rebalancing trades. Not only could it be cumbersome, but it could also be a compliance headache, with a need to keep track of the order in which trades were given to custodians and to rotate these orders in proscribed ways. BlazePortfolio not only allows advisors to act faster, it provides scalability. Tabak notes, “There is a real compliance benefit is the ability to do block trading and do so with live execution. Everyone will get the same price at the same custodian — even with different custodians, the timing is so exact that the execution should be close to identical. There’s no need to rotate custodians or clients.“
3) Using portfolio rebalancing to spark client communication.
The main complaint that clients have with advisors revolves around insufficient communication. Advisors who are concerned about communication are always looking for excuses to send out a timely blast email or even put in a call to key clients. Using portfolio rebalancing software optimally will mean executing trades on a timely basis that have a clear purpose. Communicating that clear purpose with clients is a valuable way to add contacts outside of the prescribed quarterly meetings. Clients will feel more informed and more confident that their assets are being tended to with the care they expect. In the end, portfolio rebalancing can be a great tool in cementing relationships.