Portfolio Adviser • Portfolio Adviser December 2024 • Wealth manager Q&A

PortfolioMetrix CIO Alex Funk has witnessed the adoption of model portfolios reshape the investment landscape but he believes there is work to be done in taking some of the risk out of the process

Q: What’s the biggest change you’ve seen in the industry since you joined?

The adoption of model portfolios by advisers has been a seismic change. This trend involves partnering with providers to deliver discretionary managed solutions for their clients. Whether it’s model portfolios readily available on platforms or tailored models built specifically for adviser businesses, the evolution has been remarkable.

Some providers have even set up new companies alongside financial advisers to manage these assets, marking a significant step change in the industry. This collaboration has not only enhanced the service offerings but also brought about innovative business models that are reshaping the landscape.

Investors often focus on geopolitical risk, uncertainty and volatility, and how to position for these events. Ironically, by concentrating solely on these binary outcomes, one can inadvertently increase portfolio volatility, which is the opposite of what investors want to achieve.

The most important risk investors need to be aware of is shortfall risk – of not achieving their goals. By fixating too much on large macro events, investors can lose out to their behavioural biases, leading them to focus too much on the near term and neglecting the long-term objectives of their portfolio. Instead, we should focus on the diversification benefits of a portfolio, build it to weather the storm and avoid large macro calls that are very hard to get right.

Q: What piece of regulation has had the biggest impact on your day-to-day role?

It’s been more than a year since the introduction of Consumer Duty, which has resulted in a significant shift in how advisers decide to invest their clients’ money. Crucially, it’s led to a mass migration from advisory to discretionary models. This has required discretionary managers like us to adapt to help advisers with these challenges and become true investment partners – to essentially become an extension of their financial planning practice as their in-house investment team.

This has fundamentally changed, and will continue to change, not only the industry itself but also the interaction between advisers and discretionary fund managers. It’s driven by regulation but ultimately determined by the innovative solutions we provide to advisers.

I would phrase this as an improvement rather than a wholesale change: how model portfolios are managed on platforms. The operational risk being consumed by the industry often goes unnoticed. Having a proliferation of different model portfolios on platforms for various advisers – and further complicating this with the evolution of tailored model portfolios – poses a real risk to the industry.

A technological solution to solve this would be my one wish. The way we work with advisers is changing, and the unitisation of model portfolios has become important again. I encourage the industry to use funds for their intended purpose and avoid adding unnecessary additional costs to investors. The future may lie in a unitised model portfolio supplemented with technology to offer advisers the benefits of model portfolios through a more efficient structure – the multi-asset fund.

Immerse yourself in as much of the industry as you can. You don’t know what you don’t know, so take this as an opportunity to understand all aspects of the industry – not just the portfolio management and research piece, but everything from distribution to adviser needs, platforms and the operational structure of funds.

This will give you the best holistic picture of the industry, after which you can truly understand which parts you are most interested in and focus on those.

Alex Funk is the head of investment at PortfolioMetrix UK. Prior to joining the firm in August 2024, he was CIO of Schroder Investment Solutions. Funk has also been the CIO of Benchmark Capital, as well as an investment specialist at Premier Asset Management.