Financial planners’ use of model portfolios is increasing as productivity and efficiency stresses build in the Future of Financial Advice (FOFA) reform pressure cooker.
To the end of 2011, 74 per cent of advisers used model portfolios and Investment Trend’s report results showed that this number should rise to 77 per cent by the end of this year.
Investment Trends senior analyst Recep III Peker said the anecdotal reason given for this growing use is that “model portfolios help a practice to be more efficient”.
“While the client’s risk profile will define whether a model portfolio is used,” Peker said.
“Such model portfolios have a place for high-volume, low-cost advice.”
Model portfolios are a ready-made off-the-shelf investment approach which use different asset allocations for various risk profiles.
The Adviser Product Needs Report polled 966 independent and aligned advisers late last year.
Of the planners surveyed, research house use was: 44 per cent used Morningstar, 34 per cent Lonsec, and 26 per cent van Eyk (some advisers used more than one research house).
Advisers were asked about their reasons for recommending direct equities, Peker said, and the answer was “not what I was expecting”.
“Transparency had increased in importance,” he said.
“Between 2010 and 2011, the ‘transparency’ reason for recommending direct equities and SMAs (Self Managed Accounts) went from 43 per cent to 58 per cent.”
The main reasons for recommending direct equities were: franking 69 per cent; dividends 66 per cent; cost-efficiency 58 per cent; transparency 58 per cent; and liquidity 51 per cent.
