Model portfolios just the start of innovation

The wealth management industry is adapting to changing business models in a number of innovative ways, not simply stopping at the implementation of model portfolios, according to the managing director of Financial Simplicity, Stuart Holdsworth.

Speaking at an Australasian Compliance Institute workshop in Sydney yesterday, Holdsworth said the industry was shifting away from the legacy of product promotion to the provision of appropriate advice that ensured products were appropriate for clients. Within this lay the need to continually add value, which would justify ongoing service fees, he said.

“Continuing value add is significant to the whole business of wealth management,” he said, adding that the shift was at the top of the minds of businesses, whether as a result of regulatory pressure or a recognition of the need for change as the industry lost exclusivity of product distribution.

Holdsworth said the industry was responding in various ways to meeting the challenges of increasing litigation risk and the need to provide continued value add to individuals looking for tailored solutions. He said organisations were “finding commonality in the chaos” through the development of model portfolios, for example.

“Five years ago model portfolios were a rare discussion but most organisations are now embracing them,” he said.

One of the key positives of model portfolios was their ability to continually add value through tracking a portfolio and therefore allowing the easier demonstration of value, Holdsworth said. And while tailoring these model portfolios with ‘client overlays’ as he called them would add to their complexity and cost, model portfolios provided a good solution to this problem of blending commonality with specific client needs.

Holdsworth said some organisations were going even further than simply implementing model portfolios, using add-on systems that would demonstrate why certain investments did well or failed to meet expectations. For example, being able to define and demonstrate how the portfolio was managed in terms of tax liabilities provided a level of information that was important to clients, he added.

Another value add was portfolio compliance alerting systems that threw up red flags should a client’s portfolio deviate from the model portfolio or compliance standards, Holdsworth said. Some organisations were even going a step further by implementing systems that would send the adviser or group information that would help them solve the problem and get back on track.

Holdsworth said such technology was redefining what compliance is about, evolving it into something that could drive the business rather than play catch-up with regulation.