Planit:Impact with Allocation Method

From Planipedia

In the 5.2 version we have a new feature where the advisor can elect to use “Detailed” Morningstar asset allocation breakdowns as opposed to “Summary” or what used to be called our “Balanced” method. We want you to understand the impact you will see on your clients.

Summary Asset Allocation Method: Below you will see a screen shot of the Security Selection screen after we have applied the “Moderate” Preferred Portfolio. You’ll notice that the last column basically is telling us that we have achieved our target allocation (just a $1 rounding differential). This is what you would be use to seeing when using our old “Balanced” method which the new “Summary” method replicates.

Detailed Asset Allocation Method: Here’s what the Security Selection screen looks like after we have changed to the detailed asset allocation method. Notice that the last column now shows that we are NOT achieving our target asset allocation. Nothing changed in the product recommendations . . . we just are looking at the more granular asset allocation of the individual products and the overall allocation achieved with the product selections is more fluid and changing. This will make it more difficult to achieve the targets the advisor is trying to achieve. It will also make it more difficult to re-balance the portfolio. Especially if the fund managers are making many changes in the configuration of their funds. This illustrates the reason why we used the “Balanced/Summary” method in the past.

This is the “All Portfolios” view of the Security Selection screen for the same client as seen above . . .using the detailed allocation method. You can see how “off” we are from the targets.

Part of the problem is that advisors may have to re-configure your “Preferred Portfolios” after you decide to go to the detailed method. For example if you are building a Moderate Portfolio and they select a Canadian Equity fund and that fund has 10% in US Equities some in Small Cap US and Canadian and some International Equities, which is what we are seeing routinely in many Canadian Equity funds, then you might have to use more “Canadian Equity” and less US/International equities. However if you do not want to change your “Preferred Portfolios” you always have the option to keep using the “Summary/Balanced” method.

We just felt that we needed to make everyone aware of this change, since many advisors will be very happy to have the detailed asset allocation breakdowns, but many also won’t totally understand what it means in the management of their portfolio recommendations and rebalancing decisions.