Asset allocation is a first principle of financial planning, as essential to the practice as thinking was to Descartes. And yet, as practices become more sophisticated, this indispensable tool of portfolio management has become more difficult to wield consistently. Clients may resist the idea of rebalancing, convinced that their winners need to run. Practitioners feel pressure to spend less time tinkering with portfolios, and more time prospecting for new clients (as well as meeting with clients already on the roster). You may be contemplating putting your clients into asset allocation funds--but then, you wonder, why does the client need you?

How do we know this? We asked. This summer, Financial Planning, along with AllianceBernstein Investment Research and Management and Mathew Greenwald & Associates, a research firm, surveyed 567 financial advisers nationwide about how they employ asset allocation in their practices. What we learned surprised us--and revealed that an unexpected number of advisers still need help. For instance, although 94% of you agree that asset allocation is at least as important as individual investment selection (an assertion proved in 1986 in a study by Gary Brinson and others), only 63% of you offer an asset allocation plan to every client--and 30% of you lack a formal approach. What's more, a plurality of you, when asked how you would grade your peers' ability to get clients to stick to a proper asset allocation plan, gave them a mere gentleman's C.

All of the advisers in our survey had practiced for at least five years and had at least $25 million under management, so there's no excuse. But there are reasons. And that's what our survey explores. (The complete results are available here.)

THE STUMBLING BLOCK

The sticking point for portfolio management, you say, isn't diversification. Almost all of you spread your equity positions around the style boxes, buying growth, value and international stocks. Three-quarters of you have your clients in REITs and two-thirds have emerging-markets exposure. Many of you even move well beyond the standards--you've got natural resources, commodities and high-yield debt in the mix. One-quarter of you have some clients in alternative investments, including hedge funds.

The trouble comes when you have to re-balance portfolios. You believe that a properly maintained asset allocation plan would have added 68%, on average, to a typical investor's portfolio over the last 30 years (that's 164 basis points per year). But your clients resist your best efforts.

A perennial stumbling block for your clients is neglecting to take profits. Everyone loves a winner and investors are no exception. Who wants to sell a great performer and redirect the cash toward a sector that's in the tank? Indeed, 81% of you report that your clients are reluctant to rebalance for this reason.

In addition, your clients know taxes and transaction costs create friction that can brake the smooth growth of any portfolio. Clearly, a good portion of you aren't adequately communicating your ability to minimize, or at least manage, the burn.

REGULATED REBALANCING

The good news is, you realize that your most important job--and one that 52% of you want to devote more time to--is communicating with your clients. The aversion they quite reasonably feel toward rebalancing portfolios (which, as you know, is a completely counterintuitive activity) can be managed.

One way to do that is by creating asset allocation models and a rigorous rebalancing program that takes effect at specific time intervals. Forty-three percent of you already do that, typically at least once a year. Another popular technique is to rebalance when the market moves enough to shift your allocations beyond a set parameter. This technique is embraced by 50% of planners, who swing into action when an allocation moves, on average, 15% beyond its model.

A third path is to turn over the portfolio to asset managers who do the heavy lifting by allocating assets and rebalancing them as part of a predetermined program. This is the raison d'etre for the growth in asset allocation funds, turnkey asset-management programs and separately managed accounts. AllianceBernstein itself has followed this route with private clients for decades, in Bernstein Investment Research and Management before its merger with Alliance Capital.

Bernstein's 235 private advisers, who each have, on average, $300 million under management, do not invest any money themselves. They spend their time bringing in an average of $50 million in new business a year. "Bernstein financial advisers do not pick anything," explains AllianceBernstein chairman Marc O. Mayer. "Everything they bring to a client, we manufacture. The financial adviser's job is cultivating the clients, then communicating with and servicing them."

Okay, so you're not with Bernstein. But you do have access to vehicles that perform similar tasks. A slew of manufacturers have introduced asset allocation products based on either a client's risk profile or target retirement date. Retirement-plan sponsors love them, and 62% of you use them as core holdings already.