Our partners at Russell Investments (1) are releasing a series of articles based on the “Value of an adviser formula” that we would like to share with all of you, either if you already are part of the Temple Row family, or about to become or an occasional visitor. This formula provides the cumulative value of the services provided by a financial adviser.
A: Active rebalancing of the investment portfolios.
B: Behavioural coaching.
C: Customised client experience and planning.
P: Product alignment.
Russell Investment’s first article focuses the attention on the A value. Without active rebalancing, even a balanced risk portfolio of investments could become overly heavy in some assets, diminishing the importance of diversification, and changing the risk level and potential return of the portfolio.
Recent evidence has shown that if there were ever a year in which the benefits of rebalancing were clear, 2020 was it. We deeply believe in the value that an adviser provides; and this year especially, we believe advisers are more valuable than ever.
The global pandemic has impacted us all, causing us to reassess our lifestyles, on a personal, professional and financial level. Market volatility may also have led investors to reconsider their risk tolerance or their portfolio mix. These are the circumstances in which advisors are called to play many roles: behaviour coach, family wealth adviser, investment manager, product specialist, and more.
The image below (2) demonstrates the meaningful change a non-rebalanced portfolio of investments could have after several years. In January 2009, the graph shows a balanced portfolio of assets that being left without implementing any changes has become in December 2020 a growth portfolio with quite an important amount invested in equities, reducing the fixed income assets by 20%.
In Russell’s words: “When markets are rising calmly, it can be easy to underestimate the importance of disciplined rebalancing. But when markets gyrate wildly, then the value of active rebalancing can’t be understated”.
*** Nothing in this article constitutes advice and all investments carry some level of risk. ***
(2) Source: Hypothetical analysis provided in the chart and table above is for illustrative purposes only. Not intended to represent any actual investment. Source for both chart and table: U.S. Large Cap Growth: Russell 1000 Growth Index, U.S. Large Cap Value: Russell 1000 Value Index, U.S. Small Cap: Russell 2000® Index, International Developed Equities: MSCI World ex USA Index, Emerging Markets Equity: MSCI Emerging Markets Index; Global Real Estate: FTSE EPRA NAREIT Developed Index, and Fixed Income: Bloomberg Barclays U.S. Aggregate Bond Index.