Model Portfolios  

Model portfolio provider challenges 'unfair fees'

Model portfolio provider challenges 'unfair fees'

A private investment firm has launched a model portfolio service for advisers as it warns charging asset-based fees is "outdated, unfair and unjustifiable". 

Sparrows Capital has priced its platform-based discretionary service at 0.1 per cent per year, with a cap of £20 a month for each client. 

The range has 11 portfolios varying in risk from zero to 100 per cent, in increments of 10 per cent. The service is available in funds-only format or as a combination of index funds and exchange traded funds, to the preference of advisers and their clients.

Sparrows Capital said it had priced the service following research with consultancy firm The Lang Cat and the £20 charge was intended to cover costs including portfolio construction, index selection and risk management.  

Yariv Haim, chief executive at Sparrows Capital, said: "Charging asset-based fees for model portfolios is not only outdated, it is unfair on clients and unjustifiable.

"The launch of this price disruptive product addresses regulatory concerns over the provision of value to end investors, while responding to issues of accessibility, transparency and cost identified by the introduction of Mifid II."

Mr Haim said there was "no valid reason" why a client investing £100,000 in a model portfolio should pay 10 times as
much as another client with £10,000 in the same portfolio.

He added: "Clear and predictable pricing will enable IFAs to deliver better outcomes to their clients."

The investment firm, which serves both professional and retail clients, said it hoped the charging structure would appeal to advisers and challenge the "status quo" in an industry it warned had a reputation for "overcharging and underperforming". 

Minesh Patel, chartered financial planner at EA Financial Solutions, said: "This seems like a good idea but you are only investing in passives hence why the cost can be accommodated.

"Fees are under pressure so perhaps the way forward is to outline more comprehensively the work undertaken for a client.

"The percentage based model is under pressure since it is not optimal for the client, however percentage based fees reward results whereas a flat fee does not."  

rachel.mortimer@ft.com

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