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The Wonders of Model Portfolios

By 8 May 2016November 8th, 2022No Comments

So many firms are bringing in these things called ‘Model Portfolios’ and for some, they look like a new list of approved investments for clients, often in different proportions for different risk appetites. So what is the big deal?

Well the big deal is that to be used properly, 2 key things must happen:

  1. Authors / publishers of model portfolios need to maintain them as their views on markets and investments change. To not do so could imply that there is perhaps some lack of duty of care, and it is a pretty public place to be seen here
  2. those advisers that use the model portfolios need to continually check that their client portfolios are kept within whatever parameters associated with the model portfolio in order to demonstrate
    – that they are delivering to promise of a portfolio in line with the model portfolio
    – that they are demonstrating a continuous and comprehensive oversight of the clients portfolios bearing in mind the model portfolio

Whilst practices of the past may have deemed this to be sufficiently done once a quarter or once a year, regulators around the world are expressing that the onus for advisers and the firms that they work for, is to do this in line with the way fees are being charged, and if the advisers is to position themselves as a fiduciary, that this is pretty well a continuous process.

Perhaps look at it should an adviser not achieve this continuously… what risk does the adviser or business open itself to from clients if portfolios deviate from model portfolios? What are acceptable tolerances? Are they defined? Also, what does an adviser need to do to justify their fees to regulators that are looking at this a lot more closely.

At Financial Simplicity, we believe best practice is that advisers and firms are best served to work together to both be able to monitor portfolios to model portfolios at the same time. If the advisers notices breaches first, it is a client servicing opportunity, if the firm / licensee does, it is a business risk reduction action.

Call us to find out how.

Stuart Holdsworth

Author Stuart Holdsworth

Stuart has over 30 years of experience in the use of technology for the strategic competitive advantage of businesses in the financial markets and investment industry.

More posts by Stuart Holdsworth

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