PortfolioMetrix berates DFM risk alignment

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PortfolioMetrix berates DFM risk alignment

PortfolioMetrix has launched a range of model portfolios, as it criticised some discretionary investment managers for failing to provide returns that are consistent with the level of risk.

The new PortfolioMetrix Select service offers seven options, all of which aim to keep the portfolios as closely aligned to their risk ratings as possible.

When scrutinised, it is clear that some model portfolios fail to match this expectation.Dave Chessell

This comes after research carried out by the DFM showed that some popular model portfolio ranges either deviate from their risk mandates or provide returns inconsistent with the risk taken.

Dave Chessell, distribution director at PortfolioMetrix UK, warned that this issue exposes advisers and clients to suitability risk.

“Advisers want to have confidence that the investment portfolios they recommend adhere to the risk budgets they’ve established with clients and are positioned to deliver on agreed financial goals.

“When scrutinised, it is clear that some model portfolios fail to match this expectation.”

The range is available through 10 UK platforms including Aegon, Alliance Trust Savings, Fidelity FundsNetwork, Nucleus, Praemium, Seven Investment Management, Standard Life, Transact, Wealthtime and Zurich.

Andrew Whiteley, director of Provisio, said data produced by Arc on the difference in DFM returns showed some discretionary funds are deviating from the same risk mandates.

“Of course this is a problem, but where a DFM is promoting the benefits of active management then surely by definition they must expect to deviate from their mandate either positively or negatively, otherwise the whole argument for active management falls apart. 

“By adopting a predominantly passive approach, the risk mandate should be easy to maintain as there is no expectation of over or under performance.”

katherine.denham@ft.com