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Model Portfolio

It used to be the case that when a client engaged a wealth manager to manage investments for them a completely bespoke portfolio was created to align with their risk appetite and financial goals from scratch. But while this is certainly still an option, you will find that a great many institutions have model portfolio services as a core part of their offering today.

As the name suggests, model portfolios act like templates, replacing the need for a portfolio to be designed from the ground up. Instead, a target asset allocation is created and then populated with set proportions of stocks, bonds, funds and possibly other assets and types of financial instruments with the intention of delivering a particular return at a risk premium appropriate to the kind of investor the institution has in mind. For this reason, wealth managers will run at least five or so model portfolios to suit different types of clients; some offer a range of ten or more, sometimes with options to blend in between.

The model portfolio route typically sees the investor holding the underlying investments, but with a fund manager managing and rebalancing the investments for a large number of clients on a continual basis (rebalancing is the process by which a portfolio is brought back to its target allocations to certain sectors, regions and so on after its proportions have been altered by losses or gains). Because a great deal of automation can be utilised for the running of model portfolios, and there may be significant savings to be made for making transactions on this large scale, model portfolios can be a highly cost-effective route for both the institution and the investor. For this reason, model portfolios have been highly instrumental in democratising professional portfolio management services.

There are valid reasons why a client may desire a completely bespoke portfolio to be constructed for them and if they have needs and a level of wealth which justifies this additional expense then most firms will of course oblige. However, the range of options and robust testing behind model portfolios means they are a solid option for most investors. You will also often find that there is some ability for models to be “tweaked” to better suit the individual, or for models to be blended to create the desired fit.

  • Model portfolios are the equivalent of buying a ready-made but well-fitting garment, rather than having something made just for you
  • By offering model portfolios, wealth managers can offer professional investment management to a wider range of investors and at lower costs
  • Many investors have their needs met perfectly well by one model portfolio, but a selection could be deployed to suit different elements of your financial plan

All in all, model portfolios are widely regarded as a great way for investors to get access to a diversified, actively managed and tightly monitored portfolio at far lower costs than a custom service would allow for. By using one or several model portfolios it is possible to achieve really tight alignment with your particular risk and return parameters while keeping investment costs down. Think of a model portfolio as the equivalent of buying a garment off the peg but finding it is a great fit, rather than incurring the expense of having something tailored.

If you would like to learn more about the investment options which might be suitable for your objectives and level of wealth, get in touch. Or, if you already feel ready to hear from leading providers themselves, take just a few minutes to carry out your wealth manager search today.

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