Value of an Advisor: A Is for the Active Rebalancing of Investment Portfolios

In a difficult year such as 2022, rebalancing between asset classes that are declining may seem a futile exercise. But rebalancing, even in down markets, remains vital to keeping a portfolio within the right risk/reward ratio and is a key element of the value that an advisor can provide to their clients.

Why? Well, markets that go down then invariably go up. And it’s hard to know when the tide will turn. When markets shift, a portfolio that has moved away from its designated risk/reward ratio may not perform as the investor may expect. The investor may be exposed to too much risk for their comfort level, or too little risk and potentially less reward. An advisor who keeps a portfolio on its intended track can help the investor stick to their plan. But because rebalancing is a regular duty, many advisors (and investors) don’t realize its true value.

That’s why we have produced our Value of an Advisor study every year for the past decade. We believe there are distinct ways that advisors provide value to their clients – value that is above and beyond the fees they charge. We also believe that many advisors find it difficult to not only quantify that value but communicate it.

This is where Russell Investments comes in. Our annual study both quantifies the value that advisors can add through the holistic wealth management services they may provide, and it shows advisors how to communicate that value to their clients.

We do this through our relatively simple formula:

Cumulative performance prior to recessions

This is the first of a series of blogs that will do a deeper dive into each of the components of our Value of Advisor study. In this blog, we will look at the importance of Active Rebalancing.