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31/01/2008 - Lazy advisers 'cost clients £15,000'

Advisers who fail to rebalance their client's portfolios regularly could be costing their customer as much as £15,000 in returns, analysis from Towers Perrin suggests.

The financial consultancy firm says that, beside the treating customers fairly (TCF) risk, failing to re-assess or maintain a client’s investments could have significant financial implications.

According to Towers Perrin, a client with £50,000 invested in what was an ‘efficient frontier’ portfolio four years ago, will produce an estimated median outcome of £85,234 in 30 years if it is not rebalanced.

However, it adds if this ‘efficient frontier’ portfolio is rebalanced to the 2004 asset allocation, the most likely return in 30 years is increased to £91,080.

Furthermore, it says a portfolio maintained on the ‘efficient frontier’ and rebalanced thereafter can climb to £98,666 after 30 years, taking into account that the efficiency of a portfolio can be expected to decline as time passes.

Bruce Moss, Towers Perrin principal, says: “Unless the portfolio is rebalanced and updated regularly, investors could be missing out on additional returns and potentially investing in portfolios that no longer match their appetite for risk.”

The other major issue highlighted by Towers Perrin is that failing to review a client’s portfolio regularly can also result in the portfolio no longer being suitable for the investor’s attitude to risk.

“Attitudes toward risk change, and advisers need to review portfolios to keep up with the risk that customers want to take on,” says Moss.
“With developments such as TCF, there is more focus on ongoing customer service and support. It can be seen that regular reviews and rebalancing of a client's portfolio is an essential part of the process.

“The good news is that there are tools available to help advisers provide this service simply and cheaply and as a result deliver clear added value to their clients.”

This article was first published by IFAonline, part of the Incisive Media group.

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