“For the past five years, we’ve created an annual report that holistically analyzes the real value advisors deliver to their investor clients in their portfolios, in vital services advisors provide. Today’s advisors may be challenged to articulate the material value they deliver. That’s why it’s so important to provide a simple, easy-to-follow equation that shows the full value of an advisor’s services. It’s as easy as ABC, and then some:
Value of an Advisor = A+B+C+P+T
A is for Annual rebalancing
When markets are rising, it can be easy to underestimate the importance of disciplined rebalancing. We believe rebalancing is vital, because it is designed to help investors avoid unnecessary risk exposure. Imagine you have a hypothetical balanced index portfolio that has not been rebalanced. In certain market conditions, it could end up looking more like a growth portfolio and expose the investor to risk they didn’t agree to. The annual rebalancing an advisor provides can help keep that from happening.
We believe there are two reasons that many end investors don’t rebalance if left to their own devices:
1. Because it’s an easy thing to forget to do. Investors know they’re supposed to do it. We also know we’re supposed to change the batteries on our smoke alarms once a year. But do we really do it?
2. Because, in many cases, rebalancing may be the equivalent of buying more of what’s been hurting my portfolio and selling what’s been doing well. It may run counter to what an investor’s gut feelings are telling them they need. Rebalancing takes discipline. Advisors can help deliver that discipline and help position investors for long-term success. Read more »