HNWs moving away from model portfolios

Advisers are expecting their high-net-worth clients to decrease allocation to model portfolios, making it essential for product providers to rethink their distribution strategy, says Tria Investment Partners.

In a survey by Tria Investment Partners, 15 per cent of financial advisers said they expect their HNW clients to decrease their allocation to model portfolios during the next three years.

Product providers looking to target HNW investors should rethink their distribution strategy if it depends upon inclusion within dealer group model portfolios, Tria Investment Partners warned.

The Tria Retail Wealth Insights Programme found there was almost no change (-1 per cent) in advisers' expected use of model portfolios in the next three years.


However, when clients were segmented into mass market (under $500,000), affluent ($500,000 to $1 million) and HNW (above $1 million) the expected usage of model portfolios by planners was zero, +3 per cent and -15 per cent, respectively.

Using this segmentation model, it is "clear that model portfolios are very much out of favour amongst advisers who have a greater focus on HNW clients", said Tria.

"As an asset manager, if my distribution model is geared towards targeting dealer group head offices for inclusion into their proprietary model portfolios, it is unlikely that I would attract strong flows from their practices focused on high-net-worth clients," said Tria.

"Now depending on my strategy and target market, this might be an acceptable choice; however, if I’ve positioned my product to attract HNW investors, how successful is my distribution model likely to be?"

The challenge for asset managers is to effectively segment their clients into mass market, affluent and HNW, according to Tria – acknowledging it can be difficult given the lack of reliable data.

"Platform providers have traditionally enjoyed a data advantage given their roles as administrators. But for asset managers, the same level of data is often not available because of their disintermediation from advisers, let alone investors," said Tria.

"Distribution teams must be willing to expend the effort now to consistently capture and refresh quality insights about their intermediaries and clients, be they existing or prospects, advocates or detractors alike."


HNWs moving away from model portfolios
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