Model portfolios overbought on single-fund fee fears

Advisers’ concerns over justifying their fees in the post-RDR world are leading to model portfolios generating more business than they warrant, according to Blacksquare chief executive Christopher Peel.

Mr Peel (pictured) said overwhelming demand for his company’s Acumen model portfolio service had forced him to “mothball” the planned launch of three multi-asset funds based on the same process and asset allocations.

He said the demand had been driven by advisers feeling unable to justify charging fees to clients for recommending investments in a single multi-asset fund.

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“Bizarrely, the feedback we got from the market was that an adviser felt more comfortable recommending a multi-asset model portfolio than a single investment,” he said.

“The feedback was clear: it would be hard for advisers to justify fees. I can see why that is the case at the coalface, but multi-asset funds are cheaper, you get the benefits of Ucits protection, daily pricing, and it is efficiently managed by a professional manager.

“But that’s not what the market wants.”

He said the group would launch the open-ended fund versions of the Acumen portfolios “at some point”. The firm previously announced last summer that it planned to launch Acumen Conservative, Acumen Progressive and Acumen Ambitious funds alongside its existing £12m Acumen Defensive fund.

Mr Peel added that the FCA was likely to scrutinise “suitability and best practice” relating to the use of model portfolios by advisers and expressed surprise that this had not already happened.