Difference between a Model Portfolio vs ie Scottish Widows Pension Portfolio or RL Governed Portfoli

Morning All.

Probably a simple question!
I am trying to get my head around what the difference is between a Model Portfolio with Brewin (or similar provider) vs like a Pension Portfolio with Scottish Widows or Aegon Core/Select Portfolios or Royal London Governed Portfolios.?

In simple terms please :@)

Thanks

Colin

Comments

  • Hi Colin

    For me, something like a model portfolio is actively managed, and the charges you pay are a reflection of the active management. The governed portfolios (for example) are passive offerings, so you pay much less for them.

    The interesting bit comes when you decide whether paying higher charges is worth it - do actively managed funds/portfolios actually make better returns than their passive counterparts, and if they do, by how much do the additional charges negate any additional growth?

    You might find this helpful: https://www.investopedia.com/news/active-vs-passive-investing/

  • Is Royal London Passive @Andy_Schleider ?

  • To me there is very little difference for the client. Generally an MPS invests in lots of funds so you have a greater degree of investor protection, albeit that is probably not a major concern for most investors in vanilla UCITS funds. That said, we may see trend of more MPS providers unitising their offerings and I am told, they may work out cheaper than an MPS in the long term, albeit they need to get scale first. Some seem to have already unitised parts of their MPS.

    The MPS fees, on platform at least, tend to be a it cheaper than most active fund of funds AMCs. Insured Pension funds are a bit different of course, in so much as the fund cost will be aligned to the pension cost in many cases, and of course aren't subject to the same charging disclosures.

    MPS performance is slightly less transparent, often because fees could be different for different clients, and because you can't just search for the MPS on Trustnet like you can with a fund. It can therefore be more difficult to compare one MPS with another (unless you have Defaqto/FE etc and have access to DFM performance) and it is unhelpful that there us no standard performance disclosure. It would be useful if all performance could be quoted net of standard fees, whereas some MPS performance is a quoted gross. Clearly, if more MPS managers unitise then the performance will be easier to interrogate, albeit they may hide the funds in the Unclassified or Specialist sectors, or set up offshore (like Towry back in the day which may be more tricky to locate.)

  • edited December 2020

    The key advantage of MPS is that there is a clear view of what's being invested. The client is investing in the underlying holdings directly (they're just patched together into a portfolio by the DFM). There is also usually a wider range of investment options in the MPS versus a MAF.

    The MAF has a clear advantage with tax, since MPS in a GIA will realise gains/losses when there's a change of investments within the portfolio, whereas the MAF will not.

    Cost is always debated, but with a lot of MPS removing the requirement to pay VAT I can see this levelling off. And with some of the multi-manager MAF, it's never been a clear-cut one cheaper than the other anyway.

  • Agree with a lot of what Tom says.

    There is no material difference to the client and all have merit when used appropriately. They are all predominantly fund of funds, some fettered and some unfettered, mostly aiming for a risk (ie volatility) rating that relies on historical data and the split between growth and defensive assets.

    Transparency is the same ie for just about everyone offering them, you can see what all of them invest into.

    Where there are some differences:

    Structure. Some wrap their FoF into a single unitised fund, others hold and rebalance individual funds. This impacts tax and some costs in certain wrappers,both good and bad.
    Management styles. (passive /active/ hybrid) are favoured, or not, by some managers. And every FoF is actively managed to some extent.
    Cost. Buy the thing you want as cheap as you can if it does what the client needs.
    Ownership. Unfortunately it's nothing like as straightforward as Aron has suggested and depends on, among other things, the tax wrapper and the commercial arrangements between the fund manager, the DIM, the adviser and the platform.
    Benjamin Fabi FPFS
    Chartered Financial Planner
  • @benjaminfabi said:
    Ownership. Unfortunately it's nothing like as straightforward as Aron has suggested and depends on, among other things, the tax wrapper and the commercial arrangements between the fund manager, the DIM, the adviser and the platform.

    Merry Christmas. And also, what did I say to contradict what you've said?

    I do disagree though. Buying an MPS is as straightforward (for the client) as buying a MAF.

  • I probably should have put a colon after "Ownership". You said that the client, in an MPS, is investing in the underlying holdings directly.

    Sometimes this is true but it very often isn't (it is never true in a personal pension, for example, because the member is buying rights in the scheme and the trustees own the assets).

    Benjamin Fabi FPFS
    Chartered Financial Planner
  • I was referring to the investment transparency. I don't know if it's the same everywhere, but we and our clients can log into the XYZ DFM and see their portfolio, its value, and the transactions.

    With a MAF you cannot. Best you can see is a fund factsheet.

    I wasn't referring to ownership.

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