What can be learned from UK’s model portfolio experience?
A new report has pointed to interesting trends around the role of model portfolios and their use by financial advisers.
The ISS Market Intelligence report covering the UK market has pointed to growth in the use of model portfolios, largely driven by financial advisers.
It found that model portfolio investment fund gross sales grew by 13% over the first of this year, outpacing overall sales in the funds channel.
“Driving the growth was greater adoption of models by those firms already using models in some capacity. While financial adviser firms using model portfolios accounted for about 90% of the channel’s gross sales, their share of sales going towards these programs increased by 3% over the period, topping out at 57%,” the report said.
Reflecting at least some of the experience in Australia, the report said that when it came to model portfolios outsourced providers were having to compete vigorously with insourced solutions.
“Outsourced model portfolio providers, therefore, may need to do their homework when segmenting the financial adviser channel, as not all shelves show the same degree of openness,” it said.
“The report once again found that model portfolio product shelves remain narrow, as fewer than 20% of advisory firms were found to use more than five model providers.”
It said that for the third straight quarter, in Q2 2023 passive funds accounted for more than 30% of model gross sales, indicating that cost at the model and fund level is rising in importance.”
Commenting on the report, ISS Market Intelligence EMEA Research Leader, Benjamin Reed-Hurwitz said model portfolio services had grown by leaps and bounds in the past decade and now seemed positioned to become the default mass affluent option for many advisory firms.