ABC Wealth Management is managing a diversified portfolio for a high-net-worth client with a focus on sustainable investments. Due to a significant market event that impacts the energy sector, the portfolio manager is considering rebalancing the portfolio to adjust the exposure to energy stocks, which have become more volatile.

The portfolio consists of a mix of equities, bonds, and alternative investments, and the manager aims to maintain the targeted allocation of 60% equities, 30% bonds, and 10% alternatives. The current allocation is 65% equities, 25% bonds, and 10% alternatives post-market event.

The manager has identified the following transaction costs associated with rebalancing the portfolio:

• Brokerage fees for executing trades amounting to 0.2% of the trade value.
• Market impact costs estimated at 0.5% for equity trades due to the increased volatility in the energy sector.
• Bid-ask spread costs averaging 0.3% for the securities involved in the reallocation.

Discuss the implications of these transaction costs on the rebalancing decision, including how the costs may influence the portfolio’s overall performance and the importance of considering these costs in the context of wealth planning. Provide recommendations on how ABC Wealth Management could minimize transaction costs during the rebalancing process while still achieving the desired portfolio allocation.