SAM News

Is Outsourced Rebalancing Good For Advisors?

Posted by Gerard Michael on March 4, 2022



Outsourced rebalancing changes the advisor’s role and the client experience. Whether this is good or bad depends on your vision of the purpose of wealth management.



Traditional investor-facing advisors rebalance their clients portfolios themselves, especially if those portfolios are customized and tax managed. But advances in automated rebalancing make it possible for the rebalancing function to be delegated to somebody else – either to an in-house central rebalancing group or to a third-party firm. Such delegation (which, for simplicity, we’ll call “outsourcing” whether it’s to a third party or an in-house group), enables firms to deliver to their clients higher levels of customization and tax management, at lower cost and with greater compliance — all while freeing advisors to spend much more time with clients and prospects. 

From the firm’s perspective, that’s pretty compelling. But what does it mean for the advisor? Does outsourced rebalancing enhance or diminish the advisor role?

In short, is outsourcing good for advisors? The answer is that it depends on what the advisor thinks their job really is. 


How outsourced rebalancing enhances the advisor role

Rebalancing through a sub-advisor enables advisors to do more for their clients. When advisors do their own rebalancing, they have to compromise. There simply aren’t enough hours in the day to provide every account with optimized tax and risk management. With outsourcing, every portfolio can get, well, everything: 

  • tax-sensitive transition 
  • ongoing tax loss harvesting and gains deferral 
  • social screens
  • security-level and asset-class-level drift control, and 
  • a daily review of every portfolio to find opportunities to do more for the client 

In a fairly literal sense, outsourcing enables advisors to manage every portfolio as if it were their only portfolio. And with a lot less work. 


How outsourced rebalancing diminishes the advisor role

With all the advantages described above, what’s not to love? The answer gets back to how outsourced rebalancing 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, but it does 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, outsourced rebalancing diminishes the advisor’s role.


So, which of these views is correct?

Is there a single correct answer here? Not really. For traditional advisors -– those whose value centers on stock selection — the loss is real. But for advisors who define their role as acting as the guardian of the client’s financial well-being, outsourced rebalancing is a giant step forward in their role and their power. 

The direction the industry is heading is pretty clear — outsourced rebalancing (including the idea of “outsourcing” to an internal rebalancing group) 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 — we are an outsourced rebalancing service 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. In every sense of the word, they helped clients lead richer lives. 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 outsourced rebalancing good for advisors” is simple. The answer is yes.

For more on this topic, see Old vs. New Wealth Management


SAM and outsourced rebalancing: SAM is a provider of outsourced rebalancing and trading services that let you control asset allocation and product choice and provide your clients with high levels of customization and tax management.

Gerard Michael
Gerard Michael

President, Co-Founder