When building an insourced solution, we are agnostic on whether the model portfolios have a global focus or a UK focus; we will take on board the preferences of the advice firm to ensure the models meet their clients’ preferences.
Enhancing existing models
While making sure the portfolios follow a consistent risk separation and are unique to each individual business, there are also ways to improve them in terms of value too.
One of the key areas where we have been able to enhance many advisers’ portfolios has been in the models’ fixed income allocations.
A good discretionary manager will have expertise across the fixed income spectrum and can apply a more diversified fixed income strategy using a wide range of specialist single asset class funds instead of the strategic bond funds that many advisers currently use.
This means more specific risk controls to ensure the portfolios have the correct risk separation and better risk control. The additional benefit of this approach is a material reduction in costs, given that strategic bond funds tend to be costlier than the bond sub-asset classes they invest in.
This demonstrates the ability to apply a client specific filter to portfolios alongside the other customisations that insourcing models allow for.
All of these intricacies are what make building insourcing portfolios so interesting and unique.
But most importantly the job is about making sure the portfolios act and perform in the manner they are intended to achieve the right client outcomes.
That means cost-effective investment selections consistent with the client segment it is being designed for, as well as good risk separation throughout the range of models being delivered.
Nic Spicer is head of UK investments at Portfolio Metrix
