What is a Model Portfolio?
A model portfolio is a pre-constructed investment allocation designed to achieve specific objectives for a defined investor profile. Financial advisors use model portfolios as templates that can be efficiently applied across multiple client accounts with similar investment goals and risk characteristics.
Types of Model Portfolios
By Risk Level:
- Conservative (20-30% equity)
- Moderately Conservative (30-45% equity)
- Moderate (45-60% equity)
- Moderately Aggressive (60-75% equity)
- Aggressive (75-90% equity)
By Strategy:
- Growth models
- Income models
- Balanced models
- ESG/sustainable models
- Alternative-focused models
Model Portfolio Implementation
1. Turnkey Asset Management Programs (TAMPs)
- Third-party managed models
- Outsourced investment management
- Various platform options
2. In-House Models
- Advisor-constructed portfolios
- Proprietary investment strategy
- Full control over holdings
3. Hybrid Approach
- Combination of internal and external models
- Core-satellite implementation
Benefits of Model Portfolios
Operational Efficiency:
- Scalable client management
- Consistent investment implementation
- Simplified rebalancing
- Block trading capabilities
Client Benefits:
- Professional portfolio construction
- Disciplined investment approach
- Lower costs through scale
- Consistent risk management
Performance Considerations
| Metric | Description |
|---|---|
| Tracking error | Deviation from benchmark |
| Information ratio | Risk-adjusted excess return |
| Sharpe ratio | Return per unit of total risk |
| Max drawdown | Largest peak-to-trough decline |
Customization Options
While models provide consistency, consider customization for:
- Tax-loss harvesting opportunities
- Concentrated stock positions
- ESG/values-based restrictions
- Cash flow needs
