All advisors will agree that time and money should never be an obstacle to implementing best practices. Advisors understand the ‘why’ of rebalancing individual portfolios. However household rebalancing is still considered by many too costly in time and resources. A significant contributing factor can be the not trading and rebalancing software itself. There is an investment required to implement rebalancing at the household level. However, the software should not be the bottleneck. The ability for an advisor to have agility in those market conditions is paramount to client success.

Some studies support household portfolio trading and rebalancing as beneficial to both advisors and their clients. Furthermore, there is a suggestion that selection bias may occur in what accounts are selected for trading and rebalancing:

“These seemingly contradictory results may result from selection bias in account data sets. For example, households may choose a discount broker precisely because they are (over)confident in their ability to process information and intend to engage in high-frequency trading. And households may trade less actively in retirement accounts than in other accounts that they control.”- Fight or Flight? Portfolio Rebalancing by Individual Investors, byLaurent E. Calvet, John Y. Campbell and Paolo Sodin. The Quarterly Journal of Economics, February 2009.

Not approaching all account data sets as equal, or as a ‘household’ can lead some accounts to be over traded, others under-traded and the overall portfolio to be out of balance. This situation is due to the isolation of individual accounts and viewing data as separate from the entire household portfolio. At AdvisorPeak, we feel this is a critical mistake that our software overcomes.

As an advisor, if you are trading only at the account level, could you be inadvertently guilty of selection bias? Can you without a doubt identify and thereby justify the decision path which account to trade or rebalance? Could you be unconsciously be choosing the choice of time and money over benefit for you and your client?

While asset allocation and rebalancing are the “secrets” to a successful portfolio management strategy, trading and rebalancing by household vs. by individual accounts are what makes the difference:

#1- The number of trades reduces, thus limiting trading costs to both clients and advisors. Even if you charge clients only for AUM, your time comes at a price.

#2- The household rebalancing strategy assigns asset allocation to the entire portfolio, including all accounts, and keeps the portfolio in the correct model through a single trade.

#3- After-tax returns optimize with household trading and rebalancing. With today’s economic environment and continuously changing tax laws, advisors must consider how the entire portfolio impacts their client’s tax situation.

At AdvisorPeak, our system is designed to automate the trading, rebalancing and analysis process  to address household management. Schedule a demo and see how we can help your practice and clients “stay balanced” regardless of the market’s conditions.