Consider a situation in which a client with £250,000 has gone through a risk profiling process with an adviser and has agreed that a portfolio managed to Distribution Technology’s Dynamic Planner Risk Profile 6 would be the most appropriate. The table [see below] compares the cost of such a portfolio using a model portfolio on a platform (investing in only Oeic funds or ETFs) with that of a multi-asset fund that is actively managed to remain below the client’s risk limit, and uses a mixture of asset classes.
The model portfolio incurs much higher investment costs as it invests a higher percentage in Oeic funds, but the multi-asset fund incurs fund charges. However, the model portfolios can incur higher platform charges, as they require the functionality of a more sophisticated platform than does the purchase of the fund.
Performance reporting
A benefit of a multi-asset fund is that reporting is controlled and governed by set reporting rules making it easier for both client and adviser to assess and compare performance. So, accessing discretionary management through a risk-managed multi-asset fund solution via a platform can offer a broader range of underlying investments at costs that are similar to, or lower than a model portfolio run by a DFM on a platform.
The decision comes down to whether the additional functionality provided in a more sophisticated platform is worth the extra cost to the client while having more constrained investment options, or whether a broader range of underlying assets at a lower cost is more attractive.
John Jackson is managing director, intermediary business at Cornelian Asset Managers
| Model platform portfolio (%) | Multi-asset fund or unitised DFM (%) | |
| Annual management charge (clean share class) | 0.75 | |
| Investment management fee (inc VAT) | 0.36 | |
| Synthetic costs (investment charges of funds used in portfolios) | 0.77* | 0.37** |
| Other expenses (audit, trustee and depositary, etc) | 0.09** | |
| Total costs before platform charges | 1.13 | 1.21 |
| Platform costs *** | 0.5 | 0.11 |
| Total percentage cost | 1.63 | 1.32 |
Source: Cornelian Asset Managers
Figures are based on Cornelian Discretionary Platform Portfolio 8 on the Novia platform and the CF Cornelian Growth fund, risk profile 6 on Dynamic Planner
*Cornelian internal as at 28.02.14
**CF Cornelian Investment Funds Interim Unaudited report and financial statements 15.10.13
***The Platforum Pricing Guide, October 2013. Platform charges quoted are for Novia for the model portfolio example, Alliance Trust for the multi-asset fund.
