Goals-Based Wealth Management: An Integrated and Practical Approach to Changing the Structure of Wealth Advisory Practices

Chapter 11Managing the Portfolio Tactically

We mentioned this a couple of times already, but reading the contents of Chapter 10 must have brought the point home powerfully: a goals-based strategic asset allocation process is indeed quite tailored to the needs of each client; but it also introduces a potential nightmarish amount of complexity when it comes to managing each portfolio actively, from the point of view of the advisor, whether he or she is the chief investment officer of a single-family family office or an employee of a larger advisory firm. The need to deal with this central issue is the main theme of Part 4 of this book, but this chapter introduces a systematic approach to tactical portfolio allocation or rebalancing; without it, it is unrealistic to expect each advisor to be able to reflect, faithfully and in full, his or her views or those of the firm for which he or she works. Yet, it is a clear Securities and Exchange Commission (SEC) requirement that all clients benefit fully and fairly from the insights of their advisor. Similarly, the problem is the same for the office of a larger family, with multiple members and asset holding structures, although regulatory requirements may or may not differ.

Before moving to the detailed discussion of this point, it is worth setting out the limits of what we seek to achieve here. First, a definition: tactical management or portfolio rebalancing is the act of modifying the allocation to any of the various asset classes, ...