A client’s strategic asset allocation is 60% equities and 40% fixed income.

Strategic rebalancing restores a portfolio toward its established long-term target allocation after market movements cause the asset weights to drift. Because equities have increased from the 60% target to 72%, the portfolio now carries more equity risk than the approved strategy intended. Selling part of the equity allocation and directing the proceeds to fixed income moves the portfolio back toward the 60/40 target. Option B is correct.

Option A would increase the overweight position and represents performance chasing rather than disciplined rebalancing. Option C would materially change the strategic allocation and could create excessive cash exposure. Option D ignores the risk-management purpose of the target asset mix.

Rebalancing imposes a systematic discipline of reducing assets that have become overweight and adding to assets that have become underweight. It can prevent a portfolio’s risk profile from changing unintentionally. However, the RR must consider transaction costs, bid-ask spreads, taxes, liquidity and any significant changes in the client’s KYC information before implementing trades.

Rebalancing is not automatically required after every small market movement. Firms may use calendar-based reviews or tolerance bands. The Retail Securities syllabus includes strategic and tactical asset allocation, asset-mix strategies, rebalancing benefits and implementation costs.

===============