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Guide to whether a bespoke or model type of investment portfolio is right for you from your wealth manager.

One of the main draws to wealth management is the prospect of getting truly personal service and financial solutions suited exactly to your profile and needs. This does not necessarily have to translate into a completely tailor-made investment portfolio, however.

While the term “bespoke” conjures up all kinds of positive connotations, you should not necessarily assume that a model portfolio would not serve your needs perfectly well. There are several positives about taking a more standardised approach, for both client and wealth manager. Furthermore, the use of model portfolios has allowed many organisation to make their services and expertise accessible to a greater number of individuals, as economies of scale have allowed them to lower their minimum investment levels.

How it works

When it comes to the choice between a bespoke or model investment portfolio, it can be useful to think about things in terms of a tailoring analogy.

The investment management equivalent of haute couture would be a totally bespoke portfolio which is tailored precisely to fit your requirements and tastes. Like the high fashion designer, an investment manager may be starting with a completely blank canvas and have the freedom to bring all their expertise and vision to bear in creating something especially for you. In this scenario, once the investment manager was confident they had “measured you up” accurately, in terms of risk tolerance and financial objectives, they would design an appropriate investment strategy and asset allocation for you from scratch before creating the final, tailor-made portfolio to suit your goals and personal preferences. The investment manager would then make alterations to the portfolio regularly to ensure that it remains a perfect fit over time.

This kind of tailoring is clearly a highly time-intensive process for both parties, and one which calls for a great deal of skill and a very wide knowledge of asset classes and regions on the part of the individual investment manager. This means it is typically a more expensive option. For this reason, wealth managers usually ask for a higher minimum investment from clients looking for a bespoke investment portfolio That said, there are institutions which have put providing cost-effective bespoke wealth management at the centre of their offering; there are also firms offering bespoke investment management for portfolios of a modest size.

To return to the tailoring analogy, most of us will have lots of clothes that fit us perfectly, despite being bought off the peg, and probably many more garments that have been made a perfect fit through a slight alteration. People can be broadly grouped as to size and shape (otherwise high street clothes shops could not exist) and the same principle can be seen to apply to the construction of investment portfolios.

Ready to wear

Model portfolios can be seen as an off-the-peg solution, where the “outfit”, or portfolio, has been cut from a range of patterns designed to fit the needs of a range of typical customers. Importantly, these model portfolios will have been rigorously tested against historical (and possibly forecast) data to ensure that they behave as they are intended to in a range of market conditions. While there are no 100% guarantees of returns of course, wealth managers put a lot of resources into trying to ensure that their model portfolios deliver the expected level of returns within set risk and volatility parameters. Using model portfolios also allows wealth managers to offer their services at lower investment levels because economies of scale lead to lower operational costs.

You may find that a model portfolio is actually quite appealing once you have seen the options a wealth manager has on offer.

Your prospective wealth manager will be able to give you a plethora of information on the way these portfolios are constructed and monitored for risk management purposes if you so wish. They also take great care in matching clients to portfolios which are populated with appropriate investment instruments. Institutions may use a combination of funds, ETFs and direct equities (along with alternatives possibly) and there will be a strong rationale behind the way they construct investment portfolios.

You should also bear in mind that some wealth managers are able to “tweak” model portfolios quite extensively – up to around 20% of a client’s holdings in many cases. Others satisfy more personalised investment needs by running smaller “satellite” portfolios alongside a model portfolio for the bulk of a client’s assets. In conclusion, while your requirements might call for an entirely bespoke investment portfolio, you may conclude that – on balance – a model portfolio could suit your purposes very well. You will be given ample opportunity to discuss all the options available when you meet the wealth managers matched to your profile by

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