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Is Rebalancing Automation Good for Advisors?

Rebalancing automation changes the advisor’s role. Whether this is good or bad for advisors depends on your vision of the purpose of wealth management.


Does rebalancing automation enhance or diminish the advisor role? The question is important because rebalancing automation is immensely valuable to an organization — it enables firms to deliver to their clients higher levels of customization and tax management, at lower cost and greater compliance — all while freeing advisors to spend much more time with clients and prospects. But is this good for advisors?

The answer is that it depends on what the advisor thinks their job really is. 


How rebalancing automation enhances the advisor role

Rebalancing automation enables advisors to do more for their clients. When rebalancing was mostly, or even partly, manual, advisors had to compromise. There simply weren’t enough hours in the day to provide every account with optimized tax and risk management. With automation, every portfolio can get, well, everything: tax-sensitive transition, ongoing tax loss harvesting and gains deferral, social screens, and a daily review of every portfolio to find opportunities to do more for the client. In a fairly literal sense, automation enables advisors to manage every portfolio as if it were their only portfolio. And with a lot less work. 


How rebalancing automation diminishes the advisor role

With all the advantages described above, what’s not to love? The answer gets back to how rebalancing automation works: advisors deliver customization and tax management by setting preference parameters for each account. In effect, advisors make selections from a (large) customization and tax management menu. They’re not entering trades into a trade order management system.

Because advisors are not directly making trade decisions, it’s difficult for them to talk with clients about prospective trade decisions. It’s even hard (though not impossible) to talk about why individual trades were made. This doesn’t interfere with delivering a customized, tax-optimized solution to clients. It does, however, change the conversation away from trades towards the larger purpose of the client’s investments. Advisors can create portfolios with the risk characteristics that maximize the probability that the client will meet their goals. And they can maximize after-tax returns through active tax management. But they won’t be stock pickers. 

This is disruptive. For many advisors — and for many clients — expertise in picking stocks is what being an advisor means. And for these advisors and their clients, rebalancing automation diminishes the advisor’s role.


So, which of these views is correct?

Is there a single correct answer here? Not really. For traditional advisors, the loss is real. But for advisors who define their role as acting as the guardian of the client’s financial well-being (and, sometimes, their well-being more generally), rebalancing automation is a giant step forward in their role and their power. 

The direction the industry is heading is pretty clear — rebalancing automation will dominate because it just makes too much sense for both wealth managers and their clients. It is part of a broader industry trend away from a focus on products towards a value proposition based on acting as the client’s lifetime financial coach. We’re not a neutral party here — ours is an automated rebalancing system after all — but we very much think this is a good thing for all parties.

We’ve witnessed advisors who have made a transformative difference in their clients’ lives, and in every such case, it wasn’t because they commented wisely on the merits of individual securities. It was because they developed relationships of trust, provided their clients with wise counsel and helped them live lives with greater peace of mind. As more than one advisor has put, they help clients lead richer lives (pun obviously intended). And we see advisors embracing this role. We hear advisors say things like, “I can’t imagine managing money any other way”. These are the advisors we see who are most excited about what they do. And for these advisors, the answer to the question, “is rebalancing automation good for advisors” is simple. The answer is yes.


President, Co-Founder