A client's Investment Policy Statement (IPS) includes a specific asset allocation target. If market movements cause the current asset weights to drift significantly from these targets, the advisor must consider rebalancing. Which of the following is a key determinant in deciding when and how frequently to rebalance?

Question: A client's Investment Policy Statement (IPS) includes a specific asset allocation target. If market movements cause the current asset weights to drift significantly from these targets, the advisor must consider rebalancing. Which of the following is a key determinant in deciding when and how frequently to rebalance?

Answer options:

• The client's primary investment goal, regardless of changes in market sentiment. ✅ The tax implications of selling positions for a registered vs. non-registered account.
• The advisor's personal market outlook for the next quarter.
• The historical performance of the client's largest holding.

Correct answer: The tax implications of selling positions for a registered vs. non-registered account.

Explanation: Tax implications are a critical factor in rebalancing decisions, especially for non-registered accounts where capital gains or losses can be realized. Frequent rebalancing might be tax-inefficient, while less frequent rebalancing might lead to drift outside acceptable ranges.