"Portfolio To Go" Allocation Models Meet With A Little Resistance

Sunday, April 10, 2011 23:23
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Tags: diversification | portfolio construction

Pre-packaged portfolios may be a way to bring modern asset allocation to mass affluent investors at a reasonable price point, but not everyone is singing the praises of this "cookie cutter" approach.

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Plenty of firms are rolling out what amounts to separately managed accounts to clients with under $250,000 for around $130 to $200 a month.

 

That may feel like a small fee for middle class investors, but for the richest people in that spectrum, it still translates to an annual management fee of about 62 basis points -- only a small discount on what full-service money managers may charge their high-net-worth clients.

 

Naturally, the fixed pricing means those with less money to begin with are effectively charged a higher fee as a percentage of their assets.

 

An investor with $100,000 would pay the equivalent of a 1.56% management fee, more than 10 times what he or she would pay if the account was simply allocated into a few basic index funds.

 

Accounts that small make individual bond allocations impractical, so these portfolios are forced to stick with mutual funds and ETFs along with individual stock holdings. Otherwise, they seem to work a lot like UMAs or SMAs.

 

Whether their performance justifies their fees remains to be seen.

 

 

 

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