Portfolio drift
What portfolio drift is, why it creates compliance and suitability risk, and why daily monitoring beats quarterly reviews.
AdvisorIQ ·
Definition
Portfolio drift —
The gradual divergence of a portfolio's actual asset allocation from its target allocation, caused by differing returns across holdings. Left unchecked, drift pushes a portfolio outside the ranges set in the client's Investment Policy Statement.
If equities run hot for two quarters, a portfolio targeted at 55% equity can quietly become 65% equity — a different risk profile than the client agreed to, without anyone making a decision.
Why it's a compliance issue, not just a performance one
Drift isn't only about returns. When a portfolio breaches the bands in its IPS, the holdings may no longer match the client's documented risk tolerance — a suitability problem. The longer it goes unnoticed, the harder it is to explain.
Why timing matters
The traditional cadence is the quarterly or annual review — which means drift can persist for months before anyone catches it. Continuous monitoring flips this: a signal fires the day a position breaches its band, while it's still a small, easy correction.
That's how AdvisorIQ treats drift — as a monitored signal tied to each household's IPS, not a number you rediscover at review time.