Picking the right CIP for your business

A popular option for hands-on IFAs is the model portfolio service, which can be created in-house. It allows the adviser to meet the needs of clients with different risk profiles and investment styles. 

David Woodward, managing director at Woodward Financials, started using this type of CIP five years ago. 

He selects the investment funds that are held on his MPS and then determines the percentage each client holds in it depending on their risk appetite. He says this enables his firm to create bespoke portfolios for each client without the admin burden. 

Woodward, who is a qualified IFA and stock broker, says: “When I first took on new clients I wanted to build every client a bespoke portfolio from scratch, but it was too much of an admin burden. It’s very easy when you have 10 or 15 clients, but when you start getting 50, 100 or 150 clients, you’re literally doing the same work over again.

“If you stick with bespoke portfolios and don’t move to model portfolios then it becomes a burden and a drain on your resources, because you're too busy reviewing clients' portfolios.”

However, Woodward warns that a MPS only works well if the adviser monitors it regularly.

He adds: “Traditional advisers review their client’s risk annually and check in every now and then. They build a pension portfolio and then they just leave it. When you see some pension portfolios, they’ve had the same funds for decades. But we make sure we keep on top of our model portfolio and review it daily or weekly and make sure everything is going well.”

The perks of an MPS is that it offers ready-to-use, risk-profiled solutions for larger and more complex portfolios, according to Ross Easton, head of platform propositions at Scottish Widows.

Model portfolios offer significant flexibility when it comes to managing these tax allowances.

Ross Easton, Scottish Widows

He adds an MPS can also provide flexibility for tax planning and income withdrawal.

He says: “If the model portfolios are rebalanced, then all clients get rebalanced at the same time, ensuring consistent experience and outcomes. In model portfolios, all underlying investments are directly held by the client.

"The recent reductions we have seen in capital gains tax and dividend tax allowances will see more clients breaching their tax-free allowances and facing tax charges. Model portfolios offer significant flexibility when it comes to managing these tax allowances.

"When an underlying holding is sold, the profit or loss immediately contributes to that tax year’s allowance, which can help to prevent gains (or losses) building up over time."