Model Portfolios  

Morningstar launches investment outsourcing service

Morningstar launches investment outsourcing service

Morningstar is to launch a manager selection service to allow intermediaries to outsource asset allocation and fund manager selection.

The service will include select lists of funds, a model portfolio service (MPS) and a migration service that involves Morningstar assessing the existing range of funds on an adviser's list and suggesting alternatives.

The model portfolios will be multi-asset in construct and cover a range of risk profiles.

Gavin Corr, director of the new service at Morningstar, said: "In a post Mifid II world, financial institutions and advisers are increasingly looking to outsource fund selection and model portfolio management to third parties due to the increasing regulatory scrutiny, growing costs of having in-house investment capability and the relentless pressure on margins due to fee compression.

"Leveraging the depth of our expertise around the globe, Manager Selection Services aims to alleviate those advisers of some of the pressures in fund selection and asset allocation, allowing them to enhance the service to their clients."

Paul Stocks, managing director for financial services at intermediary firm Dobson & Hodge in Doncaster, said: "We don't believe in model portfolio services as a core to our business given that there is such a range of potential clients and, as a result, objectives, for example, if you assume a risk score of one to 10 (i.e. 10 variables), we then have investors for income, growth and perhaps capital security.  

"Add to that drawdown versus accumulation, young versus old, long versus shorter time horizon, etc, and we feel that there are way too many variables to justify using model portfolio services.

"We still build portfolios based on the client's needs and objectives as we feel this is in the client's best interest even if it means there is more time spent on it by us." 

At the core, Mr Stocks said he may use some model portfolio service/multi-asset type approaches but these will be blended in based on portfolio needs and client specifics.

He said: "With regard to select lists, again we are often concerned that they start with a restricted universe.

"We often have funds which have delivered long term returns for our clients but perhaps don't appear on 'buy lists' – maybe they are too small, maybe they aren't rated by the agency in question, etc. As such, we use buy lists to some extent to verify our own research."

david.thorpe@ft.com