Zurich has raised concerns about platforms that only permit advisers to hold a single model portfolio, restricting advisers to investments with one time horizon.
Alistair Wilson, Zurich’s head of retail platform strategy, said since the inception of pension reforms, which removed the need to buy an annuity, many retirees are leaving their funds invested and drawing a regular income.
However he pointed out some platforms only permit advisers to hold a single model portfolio, therefore restricting advisers to investments with one time horizon and potentially increasing their exposure to risk.
Mr Wilson said: “We are seeing a growing trend among advisers who are separating client cash into at least three different horizons.
“In the short-term, they are holding cash on deposit to meet clients’ immediate income needs. In the medium-term, they are looking for riskier investment to top up the cash held on deposit, and over the longer-term, they are selecting investments to secure clients’ lifetime income.”
He added advisers can meet the varying time horizons by using individual funds, but a potential problem arises for advisers who have built their centralised investment proposition around model portfolios.
Some platforms only allow advisers to hold one model portfolio at a time, Mr Wilson noted.
“Can advisers support a minimum of three different investment horizons for clients from a single model portfolio? If the answer is ‘no’, advisers could end up with exposure or risk that does not reflect the term of their investment.”
Daren O’Brien, director at London-based Aurora Financial Solutions, said the model portfolios his firm uses are really just for longer term planning, agreeing they are fairly limited for short term clients despite being regularly rebalanced.
He said: “That is why we have very regular review meetings and cash flow modelling for our clients. We are always looking for platforms that can quickly develop and adapt to our clients’ ever-changing investment needs and a wider range of models is always useful for us.”
Neil Liversidge, managing director at West Yorkshire-based West Riding Personal Financial Solutions, said in theory this is fine, but like most things it depends on the execution, adding “model portfolios worry me”.
He argued their contents need to be considered in the context of economic fundamentals and in particular, the fact the Bank of England base rate can really only increase.
Mr Liversidge said: “Despite that fact however, I know plenty of advisers who are still stuffing large proportions of new portfolios into bonds, because whatever model they are using prescribes it.
“It seems mad to me to buy assets with minimal yields whose capital value can only fall in anything but the very short term. Sometimes I wonder how many advisers actually understand the relationship between bond prices and interest rates.”
Mr Liversidge added as time moves on, what was the medium term will become the short term and what was the long term will become the medium term.
He said: “Multiple-models seems to me a very clunky way to do it. We build a bespoke portfolio for every client. For clients in drawdown we review portfolios internally every three months.
“Obviously then I’m not saying our method is less labour intensive, but at least it is one that our clients like and understand.”
ruth.gillbe@ft.com
