Aimed at independent financial advisers (IFAs), the global MPS will initially be available exclusively via the Aviva online platform. It uses its own passive products for underlying holdings and touts complete transparency of costs and charges.
Five portfolios cover a range of risk tolerances: cautious, conservative, balanced, dynamic and adventurous.
Source: HSBC Global Asset Management, November 2018
Adviser prejudice against banks
CWC research managing director Clive Waller said although the price is good, the question is whether advisers will use HSBC as a partner noting there is much prejudice against high street banks in the industry.
“My feeling is that most will not. I would have thought that their best bet is strategic partnerships with big distributors.”
Smera Ashraf (pictured), HSBC Gam’s discretionary wealth project lead, said the launch means advisers won’t have to worry about managing portfolios or rebalancing asset allocation and can spend valuable time elsewhere.
Andy Clark, chief executive officer of HSBC Gam, said the bank had been working with advisers in the UK since 1985. “This has helped us build lasting relationships with IFAs and gain a better appreciation of their concerns and needs,” Clark said.
Choosing the right DFM
Waller said he has looked at the selection criteria for advisers’ choosing MPS partners over some time and struggled to identify consistent process.
Performance was usually ranked as the most important factor, but he said this is “pretty much impossible” to assess. “Few have been around long and not all publish past performance.”
Cost and pedigree should be the most important criteria, he said.
“By pedigree, I mean, does the firm have a credible track record at running money in an appropriate sector. An example of what I don’t mean, is old fashioned DFMs who have a history of running bespoke portfolios for the colonel and his wife at an opaque cost, being seen as good for an MPS.”
Lack of clarity around MPS fees
HSBC GAM research on 12 well-known UK providers, prior to launch, found the ongoing charges figure (OCF) for funds used within model portfolios is not readily available for advisers to compare. Publicly available information focusing on the service fees for the DFM only, the asset manager said.
It revealed the OCF of the underlying holdings on average makes up 72% of the total charges.
Clark said: “This knowledge, coupled with specific research conducted to create our global managed portfolios, has helped us shape a product and service that meets the varying demands of today’s advisers and their clients.”
AMC vs total fees paid for DFMs on platform
It’s difficult to assess the total cost of a model portfolio, Clark said.
IFAs consider costs and charges to be the second most important factor when choosing a model portfolio after performance, the research revealed.
Clark added: “We’re not going to tell advisers what will work best for their clients, but we want to show the full picture to allow them to make informed decisions when it comes to costs, charges and performance.”