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“What are other advisers doing with client portfolios?”
This is one of the questions I get asked the most by financial advisers. I appreciate that many advisers are so busy with the day-to-day running of their practices, they may not get as much time to speak to their peers and share ideas as they would like.
My unequivocal answer to this question has been the same since the end of 2018 – they are using model portfolios. Given this, I thought I’d write a quick note on ETF Model Portfolios, something we at BetaShares are seeing more and more interest in from our adviser clients.
What are model portfolios?
A model portfolio is an investment portfolio covering a number of asset classes, targeting a specified expected return given a certain level of risk. They can be made up of any number of investment products, including managed funds, ETFs, and shares, for example.
A model portfolio is typically optimised for five risk profiles, ranging from Conservative to High Growth. Asset allocation in the portfolio will vary based on the risk profile. For example, a Conservative risk profile will have a lower allocation to riskier, growth assets than its High Growth counterpart.
A model portfolio will generally be constructed by a professional investment manager, however it can also be constructed in-house, by an investment committee composed of financial advisers in a practice.
Why are advisers using model portfolios?
In a word – efficiency.
Determining what their clients should be investing in (portfolio construction) is only a small part of an adviser’s job. Insurance, estate planning and tax are all important elements of the broader service an adviser provides.
Under the traditional adviser model, the adviser recommends a bespoke portfolio of investments consisting of perhaps 10-15 funds/stocks for each of their clients. Constructing and maintaining this portfolio requires a significant commitment of time and effort.
More advisers are now making the decision to invest their clients’ money into a model portfolio appropriate to the client’s risk profile. Outsourcing the portfolio construction and management aspect of their role means they can focus their time on where they can truly add value – helping clients make the best investing decisions to achieve their financial goals, and structuring their assets for future financial security.
Where can advisers access ETF model portfolios?
In response to client demand for model portfolios made up of ETFs, BetaShares offers a suite of ETF model portfolios across a number of risk profiles. Advisers have welcomed these models, and are implementing them in several ways, including:
- Complete outsourcing of portfolio construction: Many advisers are deciding that, given our investment capabilities, professional investment managers like BetaShares are better placed to determine an appropriate portfolio allocation, regularly review the funds and make changes based on market movements.
- Core of portfolios: Taking a core/satellite approach, the adviser can outsource a large portion (the core) of their investment decision, and add value by choosing a number of funds/stocks for the satellite(s).
- Accumulator clients: Clients in the accumulation phase of their superannuation have been somewhat of a quandary for advisers, given that most of this segment are looking for a low-cost solution to build out their asset base. Model portfolios have provided a solution to this. The same could be said of model portfolios as a solution for kickstarting an investment portfolio for a client’s children.
BetaShares Dynamic Asset Allocation Model Portfolios
BetaShares Dynamic Asset Allocation (DAA) Model Portfolios seek to achieve capital growth and income streams through a careful blending of asset classes using a range of cost-effective, transparent, ASX-traded ETFs and other exchange-traded products.
The result is an institutional-quality portfolio that is cost-effective, highly diversified, transparent, and simple to explain to clients.
The DAA models also employ dynamic ‘asset class tilting’ that seeks to exploit broad asset class mispricing, with the aim of producing above market (alpha) returns.
Notably, BetaShares ETF model portfolios use a ‘best of breed’ approach when selecting the vehicles with which to implement our model portfolios. Underlying product selection is based on investment merit, resulting in the models consisting of both BetaShares and other managers’ funds.
The DAA Model Portfolios are available on a number of investment platforms that include Macquarie Wrap, BT Panorama, Praemium, Hub 24 and Desktop Broker’s Guided Portfolio Services, with more soon to come.
For more information on BetaShares model portfolios, click here.