Greater bespoke model portfolio usage expected from licensees
Australian licensees are expected to make greater use of custom model portfolios for their clients, according to State Street Investment Management (SSIM), following in the footsteps of US peers.
SSIM, which rebranded from State Street Global Advisors last month, explored the trends between US and Australian financial advisers, specifically around their use of managed accounts and model portfolios.
Speaking to Money Management, Sinead Schaffer, ETF model portfolio strategist at SSIM, discussed the trends she is seeing around bespoke, custom portfolios.
Explaining the difference between those which are custom and those which are customised, she described how there is substantial demand being witnessed for custom portfolios in the US which is likely to feed through to Australia.
She said: “Customisation is when an adviser has a model portfolio and wants to make a small tweak to an off-the-shelf offering such as swapping out a fund and that’s a customisation at a client level.
“Custom portfolios, and this is where we are seeing the big growth in the US, is where a licensee group will go to an investment manager and ask them to build a custom model portfolio just for their clients.
“This might be for fund or vehicle substitutions where they feel the current ones being used don’t meet their needs. They may have some changes regarding the strategic asset allocation, they may want some asset classes to be managed actively rather than passively and so they can include everything that meets their clients’ needs.”
In Australia, she said, about 70 per cent of model portfolios are those classed as “off the shelf” and 30 per cent are custom ones built specifically for the licensee.
“While the majority is still going into off-the-shelf, we are seeing more conversations about custom and it is a huge area of interest domestically and it’s where we are seeing the growth come from offshore.”
Regarding whether this is an expensive option for a licensee to enact, Schaffer said it would all depend on how many funds are included, the size of assets managed, and the involvement that is required from the investment manager.
Anecdotal evidence from the US has found model portfolios are typically cheaper than using managed funds as well as custom portfolios allowing advisers to opt for features such as less trading frequency which could bring down costs.
The growth in bespoke offerings echoes findings by MSCI that wealth managers say it is difficult to manage their company’s in-house views with the specific needs of their clients who demand greater personalisation of their investments.
AUTHOR
Laura Dew
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