Constant portfolio changes are often more profitable for advisers than for clients.
We often meet prospective clients who proudly tell us how “attentive” their current adviser has been over the years—frequently calling to recommend changes to their investment portfolio.
Is this a good thing?
Is frequent tinkering with your portfolio a good thing? The answer: not always. In many cases, too much activity can harm long-term returns, create unnecessary tax liabilities, and, in some cases, even benefit the adviser more than you.
I highlight tax liabilities and reporting linked to academic research!
There is plenty of academic research out there that consistently shows that buy-and-hold strategies in portfolios with diversified mutual funds, shares and ETFs tend to outperform frequent trading, especially after fees and taxes (NB – in this country, for tax purposes, it is often better to hold for 3 or 5 years (See Changes in the Taxation of Income).
Hidden Commissions
- If you’re with a commission-based adviser, they may earn 3%–5% every time they buy or switch a fund on your behalf.
- That creates a conflict of interest—your portfolio may be traded more often than necessary simply to generate adviser income.
- A transparent fee-based model, like ours, avoids this problem entirely.
Further, the more you trade, the more you risk timing mistakes and chasing performance, which can reduce returns. This means that while you are selling, and before the new fund is bought, the market can move against you and you can lose out.
When changes make sense
We’re not saying portfolios should be ignored. There are times when adjustments are appropriate:
- Rebalancing: Bringing your portfolio back to its original asset allocation target (usually annually).
- Life Events: Retirement, inheritance, major purchases, or new income needs.
- Risk Reviews: If your attitude to risk changes or market conditions shift substantially.
- Annual Reviews: A once-a-year check-in to ensure your investments are aligned with your goals and tax strategy.
Rule of thumb
For most long-term investors, annual or semi-annual rebalancing is ideal—unless there’s a significant life change, risk adjustment, or market event.
A good investment advice firm will be monitoring your portfolio in the background and will only likely contact you if fund/investment changes are felt appropriate- not at a regular fixed review date that occurs several times a year.
Downsides of frequent trading
- Transaction costs :
A) If you are using a no-fee adviser, that adviser will be paid commission between 3% to 5% on each fund purchase and so has a clear conflict of interest when it comes to frequent trading.
B) Even if using a transparent fee-based adviser. that does not take commissions, there can be fund trading fees.
- Taxes : Selling the winners can trigger capital gains, reducing your after-tax return (as referred to above
- Overtrading : Studies show that frequent changes often reduce long-term returns compared to staying the course. Overactive trading underperforms buy-and-hold in ~70% of cases (source: Vanguard 2024).
Key Questions to Ask Your Adviser:
- “How does this improve my long-term outcome?” and
- “What are the costs and tax implications?” and
- “Would you make the same change if you weren’t earning commission on it?
- Check alignment : Does the change align with your risk tolerance, time horizon, and goals—or is it just chasing short-term market moves?
If your adviser can’t answer confidently—or avoids the commission question—it’s a red flag.
You can always compare performance : Track how your portfolio would have done if you had stayed the course vs. with the changes. Even the best adviser may not always get this right every time. but if they consistently do not, then you should ask questions.
Summary
For most long-term investors, the best approach is simple and disciplined:
- Build a well-diversified portfolio
- Review annually
- Rebalance when necessary
- Avoid unnecessary tinkering
Constant portfolio changes are often more profitable for advisers than for clients. If you want advice that prioritises your returns instead of hidden commissions, choose a transparent, fee-based adviser.
