When you rebalance a client's portfolio, you are doing exactly what you were hired to do — keeping their risk profile aligned with their goals and systematically buying low and selling high. But without communication, rebalancing looks like activity: trades appearing in the account, positions changing, money moving. A brief, clear rebalancing letter transforms a potential source of confusion into a demonstration of disciplined, intentional investment management.
Many clients don't understand what portfolio rebalancing is or why it's done. They see transactions and wonder: "Why is my advisor selling my winners?" A clear rebalancing letter preempts that question with a proactive explanation that reinforces the disciplined, rules-based nature of your process. Clients who understand what you're doing and why are dramatically less likely to second-guess it.
Rebalancing letters also serve a risk management function — they create a documentation trail showing that trades were made for investment management purposes consistent with the client's IPS, not for other reasons.
Dear [Client Name],
I wanted to give you a brief heads-up that I've rebalanced your portfolio this week. Here's what happened and why:
What Changed: Your equity allocation had grown to approximately [X%] due to strong market performance over the past [period] — above your target allocation of [X%]. I trimmed the equity exposure back toward target and added to your [fixed income / international / alternative] allocation accordingly.
Why This Matters: Rebalancing keeps your portfolio aligned with the risk level you're comfortable with and the plan we've built together. When one asset class significantly outperforms, letting it run unchecked gradually shifts your risk profile higher than intended. Rebalancing systematically captures gains from winners and redirects them to areas with better forward-looking value.
Tax Considerations: [If taxable: "We executed this rebalance primarily within your IRA to avoid triggering taxable events. Any taxable account trades were coordinated to minimize realized gains."]
No action is needed on your end. As always, call me if you have any questions.
Best,
[Advisor Name]
For clients with taxable accounts, a good rebalancing letter addresses the tax implications proactively. Explain whether the rebalance was executed in tax-advantaged accounts to minimize taxable events, or describe the tax-loss harvesting opportunities captured. This transparency demonstrates that you're thinking about the whole picture — not just the portfolio allocation.
RIALetters creates personalized portfolio rebalancing letters that explain exactly what you did and why — keeping clients informed and confident in your process with minimal effort on your end.
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