In last week's blog posting we discussed using model portfolios to minimize the damage to a portfolio during a stock market decline—which we had for a number of days this month before an apparent recovery. In that post, How to Minimize the Damage From the Current Sell-Off, I suggested some strategies to consider with model-based asset management. This week, we'll continue with another consideration and discuss a new idea I had which may be of help to every advisor.
Portfolio Inflows and Outflows
Using model portfolios is a great way to manage accounts. As we discussed last week, there are a few issues to consider about using models, including the need to rebalance to the model and any transaction fees that may occur when rebalancing. An additional issue involves clients who withdraw or add money to the account.
Inflows and outflows affect the account's allocation, which creates an imbalance with the model. If you're using no-transaction fee funds (NTF), you could take the withdrawal from multiple funds without a transaction charge (in most cases). Conversely, when a client makes a deposit, you could invest a percentage of the deposit into each fund (assuming again there are no charges). But even before you assign an account to a specific model, there's another idea which would help determine if a deeper analysis were needed.
A Much Needed 'Overview' Report
When a practice is small it's easy to manage each account individually. However, as your business grows, you must find a way to manage accounts with greater efficiency. This has been the reason for the discussion on model-based portfolio management. Here's an idea for every custodian to consider.
