Consolidating Client Assets With One Manager

Using Goals Based Investing (GBI) to See the Bigger Picture.

When client assets are all housed with one manager implementing goals based investing, it allows the manager to take a holistic view by building a dynamic asset allocation that acts as a continuous resource for meeting the investor’s goals.

This approach can incorporate client goals at varying time horizons, the specific risk required to achieve these goals and the emotional tolerance for risk taking to maximize the probability of achieving goals in a multitude of potential capital markets environments. Academic research suggests that asset allocation can be responsible for as much as 100% of long-term investment returns¹.

¹The Importance of Asset Allocation on JSTOR, as of March/April 2010.

At CNR, we believe that the GBI approach is appropriate and effective in achieving investors’ financial goals in most circumstances. We see the key factors of GBI as flexibility, risk management and client experience.

Please refer to our piece “Why Buckets Should Be Adapted to Goals Based Investing” for more detail on this subject.

There are a multitude of benefits to consolidating assets with one manager.

They include:

Using Goals Based Investing to See the Bigger Picture
Avoiding Chasing Unsustainable Performance
Creating Tax Efficiency
Lowering Costs and Leveraging Scale
Experiencing Simplicity and Convenience

EXHIBIT 1:

Persistence in Manager Ranks

AVOID CHASING UNSUSTAINABLE PERFORMANCE

Clients using multiple managers have a natural tendency to invest in managers with strong recent performance. This strategy however, counterintuitively serves as a drag on portfolio performance.

According to S&P Global, among the 529 actively managed U.S. equity funds that were in the top quartile of performance in 2019, NOT ONE remained in the top quartile of performance over the subsequent four years.

EXHIBIT 2:

Persistence in Manager Ranks of Subsequent 5 Years

Additionally, according to a study of actively managed strategies, of those in the top decile of performance over a five-year period, fewer remained in the top half over the next five years than even a random distribution would suggest. In fact, for domestic (U.S.) managers, the bottom 10% significantly outperformed the top 10% over the subsequent five years. Sticking with one multiasset class manager may reduce the drag of performance chasing.

CREATING TAX EFFICIENCY

By seeing the entire picture of a client’s portfolio, we can create greater tax efficiency through asset location and tax loss harvesting.

With tax aware asset location, we can prioritize asset mixes by an account’s tax status. Examples of this include overweighting growth stocks in ROTH IRAs, high dividend stocks in taxable accounts and securities that generate ordinary income (e.g. corporate bonds) in traditional IRAs.

Additionally, thoughtful active tax loss harvesting can reduce the amount of capital gains paid on investments without significantly impacting long term risk and return. These two strategies can increase net-of-tax returns without compromising the long-term strategy.

LOWER COSTS

When combining assets with one manager, clients reap the benefit of lower fees as they more easily reach fee reducing breakpoints. In some cases, this can save clients as much as 20 (basis points) bps in annual fees.

SIMPLICITY AND CONVENIENCE

Lastly, in addition to the financial benefits listed above, the mental ease and simplicity of having all assets with one manager solely focused on managing your household’s assets can be comforting to many clients.

At CNR, we pride ourselves on delivering comprehensive and personalized wealth management strategies designed to evolve with each of our clients’ specific and ever-changing needs.

Important Information

The views expressed represent the opinions of City National Rochdale, LLC (CNR) which are subject to change and are not intended as a forecast or guarantee of future results. Stated information is provided for informational purposes only, and should not be perceived as personalized investment, financial, legal or tax advice or a recommendation for any security. It is derived from proprietary and non-proprietary sources which have not been independently verified for accuracy or completeness. While CNR believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions which may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements.

City National Rochdale, as a matter of policy, does not give tax or legal advice. Before implementation, you should consult with your other advisors on the tax, accounting, and legal implications of the proposed strategies based on your particular circumstances.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money. All investing is subject to risk, including the possible loss of the money you invest.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

NON-DEPOSIT INVESTMENT PRODUCTS: • ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

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