Theprevalence of the use of model portfolios by financial planners and advisers has been confirmed byAssirtresearch, with 47 per cent of planners indicating they used model portfolios for 50 per cent or more of fund placements.
These figures have shot up over the past two years with 41 per cent of advisers indicating they will increase their use of model portfolios in the future.
This growth has been driven by advisers using model portfolios as a way of passing on the responsibility of choosing funds, a point confirmed by Assirt in focus groups held as part of the research process.
Assirt head of market research Vanessa McMahon says many financial advisers are now using model portfolios because they were burnt during the height of the market and do not want to carry the responsiblity of choosing funds for clients.
“Model portfolios do have an advantage because they ensure better compliance as advisers rely on research houses and dealer group back-offices or platforms to construct the portfolio,” McMahon says.
She adds that model portfolios have also gained traction among advisers because they are not being used solely for smaller investments, with half of the advisers surveyed using them for all investments.
“Nearly half of advisers who use model portfolios do so for all investment amounts. The other half use model portfolios for smaller investment amounts, but the definition of what constitutes a ‘smaller investment amount’ varies considerably between advisers,” she says.
As a result of this move, fund managers who are not offering, or have their fund listed on, model portfolios may potentially miss out on business, according to McMahon, as it would compromise the adviser’s efficiency and risk control.
“Many advisers are looking for something to lean on; something that has been thoroughly researched so that both overperfomance and underperformance can be explained and understood,” McMahon says.
The research is part of theAssirt Adviser Market Trends, out this week and was drawn from surveys, focus groups and one-on-one interviews with 575 financial advisers.
