As we all know, investing is all about finding the right balance.

And when running client portfolios, regular – usually quarterly – portfolio rebalancing is the ideal way to ensure that your clients’ asset allocation continues in line with their original risk profile and reflects their overall goals.

But if it is such a simple and effective measure, why does it often cause such headaches?

The issues

When managing portfolios on an advised basis, the need for positive affirmation from the client to authorise the rebalance can be an administrative challenge. It’s a process that can be both time-consuming and frustrating. Even if you have the most efficient process in the world, you may only be hitting a 95% success rate of contacting clients and obtaining agreement. Inevitably, this means there will always be some clients left behind in old model portfolios, carrying the risk that their portfolios aren’t aligned to their risk profile or goals. Not something the FCA looks at too favourably…

In their thematic review of adviser portfolios (TR15/12), one of the key findings was that:

Firms need to do more to ensure that the composition of the portfolios they manage truly reflects the investment needs and risk appetite of their customers, especially those who have a limited capacity for, or desire to expose themselves to the risk of, capital loss.

In addition to this, and depending on how you run your portfolios, there is the risk of ‘portfolio proliferation’. Where models are ‘dated’, a new model will supercede the previous one as your clients’ fund selection and/or asset allocation is updated. If your firm is running several model portfolios for various risk profiles and updating them every quarter, this can soon add up to a huge number of portfolios. And it becomes even more complicated if you are using more than one platform.

So although you may have thought an advisory portfolio service offers an attractive client proposition and gives you a point of differentiation, it may be proving to be an expensive administrative burden.

The advantages of a managed system

Fortunately, there are ways to make the whole process simpler and less painful.

In the past, you may have sent out numerous letters to clients with all the associated printing and postage costs, then waited for them to reply by letter to give authorisation. You may well have moved on and be using email now and providing links to the appropriate KIIDs and other supporting documentation, giving the client the ability to provide authority.

At Hubwise, we’ve taken things a little further so that rebalancing becomes simple, repeatable and quick. Client authority is obviously still required but the process of managing client permissions each quarter is handled smoothly and efficiently. All the clients’ data with links to each portfolio is held in one place so the Hubwise platform makes it easy to send out automated emails. As everything is done online, it saves paper, money and time. At the click of a button, authorisation can be given for portfolios to be rebalanced.

It also means once everything is set up, you’ll just need to change the portfolio links each time you send a new communication, making it simple for your clients to give the go-ahead. Response rates have been proven to be not only quicker but higher.

By administering the service using this type of online platform, the whole process becomes highly scalable. Suddenly, active portfolio management that previously might only have been available to higher net worth clients, becomes an option even for modest investors.

The technology not only streamlines the whole process but can also significantly reduce costs. If you‘d like to investigate how you can take away the pain and hassle of portfolio rebalancing, do get in touch.