If you haven’t used an SMA or model portfolio as part of your clients’ investment strategies before, here is why the answer to the question should be yes.
Savvy advisers today are increasingly moving towards Separately Managed Accounts (SMAs) or model portfolios within their business as a key investment strategy, and a way of reducing administration and providing more consistent returns for clients.
A model portfolio contains managed funds and equities that are grouped together to provide an expected return with a corresponding amount of risk. Models will differ in investment emphasis (such as ASX top 20, Australian shares, property securities and so on), or they can be diversified to meet certain risk/return objectives.
Their popularity in recent years is due to the following reasons:
DIVERSIFICATION AND CHOICE
- You can achieve diversification and choice with any combination of approved ASX listed securities, managed funds and cash; all available within a single model.
- The model portfolio structure can be applied to both domestic and international assets, so you can access the international exposure you require, without the administrative hassles of going onto foreign exchanges and making those transactions directly.
- There are a large number of professional investment managers managing model portfolios today; through a model portfolio you can access this expertise and know-how, which could lead to better portfolio construction and more consistent returns.
- These managers have large research and analytic teams, giving them the ability to cover a larger number of global equites and investment opportunities.
- The securities in the model portfolio are visible and portable just as they would be if they had been purchased directly.
- Clients also retain ownership of these underlying shares; and because of this they can manage their tax position, dividends and franking credits.
- Generally, the fee charged for model portfolios is modest in comparison to trying to manage those assets individually, especially given the expertise of the model managers. By way of example, the model manager fee for domestic model portfolios may be around 0.50%; whilst for international model portfolios the fee may be around 0.70%. This is more cost-effective than the average managed fund.
- In addition, given a model portfolio can be accessed by many investors, some fixed transaction charges are shared across all, reducing the cost to each investor.