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Why model portfolios needn’t be boring

Steven Rooke, Portfolio Director and Simon Cooper, Business Development Director of Cazenove Capital, talk to Sue Whitbread about the Model Portfolio Service and how it is helping advisers to provide effective investment solutions to a broader range of clients

SW: Steven, could you explain exactly what the Model Portfolio Service (MPS) is about and how you run it?

SR: The MPS is a discretionary investment management service that consists of a suite of six risk-profiled portfolios which are independently risk-rated by Distribution Technology.

It is aimed at advisers who are looking to outsource investment management in a platform environment, and to help them provide a service for clients who may not need a bespoke service as it would not be cost-effective.

We launched the MPS at the start of July 2016, literally straight after the EU vote. It was certainly an interesting time for markets back then. Since then, I’m pleased to say that the performance of the portfolios has been good. The reason we launched the MPS was to provide an extension of our Discretionary Fund Management (DFM) service offering bespoke portfolios for advisers’ clients. As time has gone by, with more and more advisers using wraps and platforms for much their investment business, adding MPS to the range was a natural progression for us. It has meant that we can extend our help and services to advisers for their entire book of business.

SW: How does the MPS differ from the bespoke portfolio service?

SC: The MPS portfolios are easily accessible via platforms and for clients with a minimum of £1,000 to invest. It takes advantage of the platform’s ability to administer assets in a cost-efficient manner and is also available in a range of tax-efficient wrappers, such as Individual Savings Accounts (ISAs), self-invested personal pensions (SIPPs) and General Investment Accounts (GIAs)

SW: Steven is there a difference in your investment approach to the MPS compared to the bespoke Discretionary portfolios?

SR: When it comes to management, what we wanted to do was to keep the MPS in line with our investment process as we possibly could, given the requirements of platform usage. Advisers will see the same investment ethos streaming through both services.

Our investment philosophy, as with the DFM service, is underpinned by two key factors: an understanding of the business cycle and its impact on different asset classes and underlying investments, as well as a strong belief in the merits of diversification. The investment approach we take within the MPS is very much a multi-asset one– a specialist area for us. Through this, we cover the full range of asset classes across equities, bonds and other alternatives (property, gold, infrastructure etc.) to ensure that we can deliver strong risk-adjusted returns for investors over time.

Our approach feeds through our centralised investment process. We benefit from having many in-house specialists at Cazenove Capital as well as being able to lean on the wider Schroders group. There’s a huge amount of resource there for us too. Our combined heritage, created by bringing together Schroders and Cazenove Capital, is quite unique in the investment world.

What this means for clients is that even those investing smaller amounts into the MPS, are getting the benefits of Cazenove Capital investment experience. Whilst using their platform of choice. MPS provides exposure to the Cazenove Capital house view on platform.

The portfolios use a whole of market approach, which also gives an extra layer of independence. There is no obligation on us whatsoever to buy Schroders’ funds.

SW: Which platforms can advisers use to access the MPS?

SC: The portfolios are available and administered by third-party platform providers and structured to fully support the client/adviser relationship. At present, advisers can access the MPS via platforms from Aegon, Standard Life, Novia, James Hay and Fusion. Aviva is following and being launched in Q4 2018.

This is an important aspect as it is all entirely IFA demand driven. It helps them to broaden the investment options they have within those platforms and helps with switching options too. We realise that ideally, we need to make the MPS available through all platforms in due course.

SW: What models are available?

SC: We have the ‘Core Models’ and ‘Active/Passive’ Models. The core models are unconstrained and utilising open ended funds, ETF’s and Investment trusts. On the back of adviser demand we launched the cost effective active/passive range.

SW: How do you go about risk monitoring within the portfolios?

SR: We construct optimal asset allocations for the models based on our in-house strategic asset allocation aligned to the six risk categories. These are independently risk rated by Distribution Technology and Defaqto.

SW: What about rebalancing? What’s your process there?

SR: We like to maintain a pragmatic approach within our models – as we do with private client portfolios. Rather than being forced into a static asset allocation, with quarterly rebalancing tied to specific dates on a calendar, we prefer to take a different route. Instead, we rebalance at a time when we feel it most appropriate. It gives us the scope to run our winners and rebalance when opportunities arise in markets. We keep a keen eye to ensure that the portfolios stay within Distribution Technology’s risk profiles.

Overall, it’s our job to provide a flexible approach for advisers. It’s not for us to force advisers to work our way, instead it’s up to us to work around them and their requirements – and that’s what we do

SW: How do you see the MPS as helping advisers to meet clients’ needs and build an effective business?

SC: Because the MPS is available through third party platforms, access is simple. We prefer not to pigeon-hole it at particular client segments and that is borne out by the way in which advisers have been using it to date. Some advisers use it for investments as large as £5m so it is by no means limited to those investing relatively small amounts. Of course, some will use the DFM service for those clients investing larger amounts, where they feel that a bespoke service may be appropriate.

Overall, it’s our job to provide a flexible approach for advisers. It’s not for us to force advisers to work our way, instead it’s up to us to work around them and their requirements – and that’s what we do. Our approach really underpins the advisers’ business. It frees up time for advisers and their teams so that they can concentrate on their client service model and deliver the most effective service for their clients. In a way, it’s like us putting 4,700 Schroders’ employees on their doorstep, helping to support the business and the service the client receives.

Put simply, using services like the MPS or the DFM helps advisers to demonstrate quite clearly to their clients that they are sitting on the same side of the table as them. It shows that it is the client’s best interests which are driving decisions and really helps maintain advisers’ impartiality. Because of the power of technology it’s so easy to do now.

Overall, it represents a very cost efficient solution for advisers’ clients. Basically, they’re getting the full Cazenove Capital experience and service for just 30 basis points ex VAT. It’s ideal for clients who don’t need or want a bespoke service.

SW: How can advisers keep up to date with what’s going on within the portfolios?

SC: Advisers and their clients can view the underlying assets through the platform. Also, we produce quarterly fact sheets for all eleven model portfolios (6 core and 5 active/passive models) as well as monthly communications, video updates and a quarterly magazine.

All of these are available through our website

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