Implementing changes to portfolios

You may occasionally run into resistance from your client when implementing the portfolio changes necessary to deliver their financial plan.

Asset allocation is the biggest driver of portfolio performance and it requires ongoing adjustment to ensure it meets risk tolerance and volatility requirements. Maintaining the right asset mix is critical, so it is vital that your client buys in to this process.

Explain your rebalancing process

If you are using a discretionary arrangement, take time to explain the rebalancing methodology being used. Explain when investments are rebalanced and at what variation changes are triggered.

If providing your own recommendations, explain that you established the allocation after considering your client’s investment objectives, risk tolerance and time frame and that the investments in each asset class help achieve short and long-term goals.

Are allocations rebalanced at regular or pre-determined intervals? Are allocations actively monitored and adjusted as and when opportunities are identified by the portfolio manager? Are adjustments triggered when your client’s asset allocations shift by a predetermined percentage from their original targets?

Explain that you have established the allocation in each asset class help achieve short- and long-term goals. Following this plan in a disciplined manner is one of the most important ways to reach those goals.

What are your client’s concerns?

Whether your clients fear missing out on potential gains, are concerned about a slipping investment, or have simply received contradictory advice, determine the cause of their concerns about the changes being made to their portfolio.

Once you identify your clients’ rebalancing concerns, you can explain why the existing rebalancing schedule continues to make sense or needs adjusting.

The best approach to reduce risk

Reinforce the message that asset allocation is the primary factor in establishing a portfolio risk profile. Adjusting allocations to either increase or decrease risk is made possible as the different asset classes carry differing levels of risk. Increasing allocation to riskier assets, such as equities, will increase the risk profile of the portfolio. Conversely, reducing an allocation of equities will lower the risk profile of the portfolio. You might like to add there is some possibility your client may not realise the full uptake of rising prices within one asset class, but that will be offset by the reductions being made to downside risk.

We would like the opportunity to meet you

We would welcome an opportunity to speak with you about some of the techniques we have found helpful and would be happy to go through these in more detail with you.

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About the author
Paul Bolt, our wine expert, was recently inducted as a Chevalier de Champagne and actively trades on Livex.
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