Model portfolios: Are you in or out?

With regulatory changes increasing the pressure on advisers and the time they have to serve clients, third-party, pre-packaged, risk-profiled tools were earmarked as a potential solution.

But seven months later, dissenting voices are arguing that these adviser-friendly tools were not having the anticipated impact.

A survey by Iveagh, the Guinness family fund management company, recently found that 68 per cent of advisers prefer to run their own risk-targeted portfolios, rather than outsource such tasks to a third-party provider.

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Platform and product provider risk-profiling solutions were generally met with scepticism by the 700 financial advisers surveyed, with 42 per cent also confirming they have in-house risk-profiling processes in place. According to Richard Ford, Iveagh’s chief executive, these results emphasise the need to raise awareness of the benefits of risk-targeted model portfolios.

“Many advisers are doing very well and are excelling with their clients. However, they are now expected to integrate risk-targeted solutions, and there are very good outsourcing solutions out there to assist them,” he said.

So why is it that many advisers, according to the survey, are ignoring these pre-constructed products and adopting a more DIY approach? Paul Gibson, a chartered financial planner at Edinburgh-based Carbon Financial Partners, said advisers prefer to retain control over their investment propositions because of past trust issues and the cost concerns.

“Adding another party will inevitably add to costs, and there is always the concern that the third party’s view of risk differs from the advisers’,” Mr Gibson said. “I think there is a trust issue with some advisers, given their experience of providers over the years whose risk controls have not been robust enough. I would question whether it is worth paying extra for the ‘skill’ offered by the external third party, as often the numbers don’t add up.”

Most advisers would agree that the central aspect of their job is ensuring the client gets the best deal possible. Although providers argue that this is enhanced by outsourcing investment decisions, not everyone is convinced.

Stephen Jones, chartered financial planner at North Wales-based 75point3, said: “It is clearly in the interests of proposition providers to push advisers into using their propositions, but can they move the debate on now and focus on the end user? We all know how important it is to have a robust process, but this must be something that has the flexibility to adapt to individuals.

“The real danger is making the customers fit the proposition, and while Iveagh is alarmed, perhaps the FCA will be comforted by the fact that advisers are still battling on, researching what they want their clients to invest in and digging through the layers of managers and charges. As the guys with our heads on the chopping blocks, I think we owe it to ourselves to understand what we recommend.”


The suitability of model portfolios to each client is an ongoing debate. Some advisers have been quick to point out that outsourcing solutions were not necessarily as flexible as providers suggest.