But as more and more of these portfolios look the same, how do they get to stand out?
Lucy Mitchell, associate director, Smith & Williamson, looking after its managed portfolio service, says they do this by giving clients access to closed-ended funds.
“There’s a lot of MPS to choose from, and a lot of people differentiate by price or performance. With a lot of portfolios, you can invest across asset classes and regions, but not across investment products.
“[Our] MPS is renowned for investing in open-ended funds, investment companies and passives.”
This means that it does restrict the distribution of their MPS, as not every platform offers the option of investing in investment companies.
One of the things we have got to accept is the IFA market has changedBut for Mrs Mitchell this is not a major problem as offering access to investment companies allows access to illiquid assets, something that has become a particular issue in recent months.
She says: “People assume when you buy an investment company it’s for equities, but we have alternatives, infrastructure, property and hedge funds.
“These areas struggle with liquidity, and a closed-ended vehicle is good for illiquidity, as it brings liquidity to these areas. This is because they are traded on the stock exchange, and you can trade every day.”
It is a good way of bringing about diversification in a portfolio, she adds.
“We are specifically going on certain fund platforms in order to stick to what we believe in.
“The prime example is property. We’ve seen several occasions where open-ended property funds have had to gate. They are offering daily liquidity in illiquid assets.
“What that means for clients is they can’t get their money, and they can’t rebalance. But people can invest in an investment company because these trade on the stock exchange.”
Branching out
Smith & Williamson has been going for 140 years, and started out as an accountancy company. Over the years, it has been involved in the administration of several high-profile corporate failures (for example, it is one of the joint administrators of GPC Sipp, which went into administration in June 2019).
Smith & Williamson has since branched out into investment and wealth management. It has £22bn of assets under management, and specialist research teams to find the right asset.
Mrs Mitchell says: “Seven years ago Mickey Morrissey, [the partner of outsourced investment services], decided to focus on having a core team to promote this service.
“One of the things we have got to accept is the IFA market has changed.
“Our bespoke portfolios are for very wealthy clients. What we are doing for the mass market is MPS; these are for people with £20,000 and above who can access the experience of our investment teams at a lower price, although they don’t have the same relationship with a portfolio manager.
“The point of contact is the IFA, but it’s a way of accessing the same research capability, and it has allowed the mass market to benefit from the experience of Smith & Williamson.”
Risk and allocations
The model portfolios are risk rated, and one simply accesses them via a platform; they are risk rated by Dynamic Planner’s risk-rating profile numbers three to eight.
The defensive portfolio is 31 per cent equities, while the dynamic growth portfolio is 94 per cent shares. Obviously asset classes move around all the time, but the Smith & Williamson MPS can go 4 per cent absolute and 20 per cent relative to that.
What this means, is that if the position in European equities is set at 10 per cent, then the portfolio can go either 6 per cent or 14 per cent of equities, or 20 per cent in its allocation.
She says that while they can move around the allocations a little, “we can’t exceed the parameters set.
“The benchmark for high-yield bonds in dynamic growth is 4 per cent; we’re at 1.38 per cent. We do have flexibility as long as we stay within the risk parameters.”
She adds: “Investment companies have different characteristics to open-ended funds.
“One of the characteristics of closed-ended funds is they can leverage, and we need to take that into consideration within the risk parameters.
“We also take into account the market cap of the investment company, and that’s what enhances liquidity in our portfolio.”
The IFA experience
The company has three MPS managers, with 50 people supporting in research.
The IFA experience is like buying any other fund on a platform. She says: “What the client sees when they open a portfolio, from an IFA’s perspective, is no different to buying a fund: do you want balance and growth model, for example?”
The money goes into the fund and is distributed according to the allocations set; the Smith & Williamson model is known for providing more diverse portfolios.
Mrs Mitchell began in financial services at a hedge fund, as a research analyst, but wanted to do some more client-facing work, so moved to Canaccord Genuity as a business development manager before joining Smith & Williamson in 2015.
She says: “We see more and more IFAs outsourcing, there’s growth on the platform and we will continue to see that.
“MPS allows clients to keep assets on a platform and use our investment expertise.
“Ten years ago everyone wanted to do bespoke.” Now, she says, many see MPS as a solution.
“MPS offers a streamlined, efficient approach.”
Melanie Tringham is features editor of Financial Adviser and FTAdviser
