How Advanced Rebalancing Can Help Family Offices Meet Complex Needs of Wealthy Clients

How Advanced Rebalancing Can Help Family Offices Meet Complex Needs of Wealthy Clients | RedBlack Viewpoint

Single- and multi-family offices as well as RIAs serving sophisticated, multi-generational clients must continuously meet or exceed their expectations. Delivering a high level of tailored investment and portfolio services relies on the right rebalancing and trading technology to meet complex needs, simplify that complexity, and scale efficiently across the entire client base.

According to McKinsey, when firms become digital leaders in their industry, they have faster revenue growth and higher productivity than less-digitized peers. Industry influencer Craig Iskowitz puts it more bluntly: “If (family offices) choose not to innovate, they risk going the way of Sears or Blockbuster.”

No two family offices are alike, nor are their clients. With increased ESG and alternative investments adding to model and process complexity, an advanced rebalancing solution is the best way to reduce friction around service and scale – and spend more time delivering value to clients.

How to Spend More Time Delivering Value

Meeting Sophisticated Family Office Client Needs

Alternative investments, from real estate and private equity to fine art and precious metals, among the HNW and UHNW are on the rise. In fact, over 80% of family offices invest in private equity, and of those family offices, an increasing number of them are making direct investments, rather than going through a hedge fund, according to UBS.

Clients also want more attention paid to householding, separately managed accounts (SMAs), limited partnerships and customized portfolios. This requires precision as well as flexibility to include alternative investments in the overall portfolio as exposure rather than net worth, or view real estate holdings in one portfolio, for example. Every client is unique; therefore, the advisor and the client must work together to determine what should be considered part of their portfolio and how positions are classified.

Exceeding Expectations with Advanced Rebalancing

Today’s affluent clients want more transparency, reduced tax burdens, wealth and asset preservation, and socially responsible investing, and the flexibility to include alternative investments in their portfolios in ways that make the most sense to their specific needs and goals.

A rebalancing and reporting solution needs to be flexible and powerful enough to meet the sophistication family offices and their clients demand. In response, many advisors and investment counselors are seeking more advanced rebalancing capabilities that can handle different client needs and scenarios, such as:

  • Split Compensation – Considers the multi-dimensional nature of alternative investments by compensating to one or more classifications at customized ratios
  • Separately Managed Accounts (SMAs) – Letting you gain flexibility in how and where SMAs are securitized and traded during a rebalance
  • Capital Gains Budgets – Enabling you to establish capital gains limits to help control your clients’ annual tax burdens
  • Customized Investment Policies & Reporting – Ensures investment policy compliance during rebalancing and firm-level oversight of investment policy violations

Understanding Simple vs. Complex Rebalancing

The technology decisions a firm makes will make or break its ability to appropriately managing asset allocation and risk for their clients, and react quickly to changing goals and circumstances. However, rebalancing technology options vary widely in terms of their acumen in handling simple versus complex requirements.

When a firm is faced with a decision to adopt new rebalancing software, it should be driven by the sophistication of an advisor’s client portfolios and asset allocations, as well as the need to scale across a diverse set of clients. Million-dollar households invest differently than billion-dollar households. While exchange-traded funds, mutual funds and equities are typical among clients up to and including the HNW, the UHNW tend to have more complex and diverse portfolios with more focus on private equity, SMAs, real estate, and partnerships, and are more aware of the need to control tax liabilities. Advisors need to be able to tailor services while also scaling quickly to meet all client needs.

A rebalancing solution should allow accounts to be combined into million- or billion-dollar households, and provide transparency into the securities and investment instruments used. It should also offer modeling flexibility using restrictions, compensation and target overrides, while handling alternative assets and taking them into consideration during a rebalance.

Regardless of the complexity of a firm’s clients and portfolios, a rebalancing system should not make rebalancing itself complex. It should simplify the process and ultimately empower advisors to exceed their clients’ expectations.