Many advisers are outsourcing portfolio management

By Morningstar |  10-07-19 | 

Morningstar India has launched its Managed Portfolios Services in India in 2019. The product is gaining traction among advisers as it allows them to outsource investment management and focus on their core activities like business development and client engagement.

Dhaval Kapadia, Portfolio Specialist, Morningstar Investment Advisers India, chats with Ravi Samalad on how this product adds value to advisers’ practice.

What is the rationale behind launching Morningstar Managed Portfolios?

Morningstar offers investment management services through its investment advisory subsidiaries, with more than $228 billion in assets under advisory and management as of June  2020. Managed Portfolios draw on Morningstar Investment Management’s core capabilities in asset allocation, manager selection, and portfolio construction to help advisers differentiate themselves from competitors. The portfolios are designed to offer advisers in India a holistic investing solution to help clients meet their financial goals.

Can you take us through how the product is structured and how is it being marketed? Is Morningstar planning to offer this product to investors directly?

The Managed Portfolios are discretionary, actively managed multi-asset portfolios investing across asset classes such as domestic equity, fixed income, international equity, gold and cash with the underlying being direct plans of mutual funds. The asset allocation would be actively managed using Morningstar’s Valuation Driven Asset Allocation process. There are four active portfolios catering to various risk profiles and are offered to investors through advisers only.

Unlike few PMS funds, the product has no set-up fee. However, Morningstar shall charge an investment management fee to the assets under management.

If advisers outsource investment management, what is the value that they can add to clients?

Portfolio construction and monitoring requires investment expertise, resources that entail fixed costs in the form of having a research set-up and other back-office functions and is also time-consuming. Hence, outsourcing investment management would be cost-effective, freeing up bandwidth for advisers. This will help them focus on their core strengths like client acquisition/engagement, financial planning and acting as a guide for investors.

How will advisers be compensated for recommending this product to their clients?

The investment management fees that Morningstar would charge, would be shared with the advisers.

Can you take us through some of the global trends in outsourcing investment management among advisers?

In the U.S. about 79% (as of 2017) of advisers outsource some or all the investment management function. About 33% of advisers outsource entirely. The percentage of advisers outsourcing entirely has seen a rise from 26% in 2012 to 33% in 2017.

Also, in the U.K., South Africa and Australia advisers are increasingly outsourcing the investment management activity while in markets such as Japan advisers are more aligned towards in-house investment management.

What will be the tax treatment of this fund?

The underlying holdings (mutual fund units) would be held in the investor’s demat account and tax rates as applicable to equity and debt mutual funds would apply to investors in the PMS.

How do you go about shortlisting funds for these portfolios? How often will the portfolio be reviewed? What will be the basis for removing and adding funds in the portfolio? What is the significance of Morningstar ratings and research in your fund research?

Once the valuation driven asset allocation is in place, the Morningstar Analyst Rated funds serve as a starting point in the fund selection process. However, we do not restrict ourselves to this rated universe. The funds are subjected to in-depth analysis at our end, followed by calls with the fund managers of respective funds to understand the fund positioning going ahead. This is followed by detailed manager analysis before being included in the managed portfolios.

The portfolios are monitored on an on-going basis and funds would be added or removed based on manager conviction given the prevailing market situation.

What support system/post-sales service do we provide to advisers?

  • Support to advisers while discussing the proposition with the client
  • Online portal for advisers
  • Dedicated operations team
  • Marketing brochures, factsheets
  • Market insights, portfolio updates

How can advisers get in touch with the team for more information?

For any queries on cost structure or the proposition, you may send in queries to

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nagender kumbala
Apr 11 2021 02:31 AM
 Sir, Please share more informatiom .seems interesting...
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