Model Portfolio & SMA Strategists Showcase - Flipbook - Page 22
SMAs & MODEL PORTFOLIOS
WATCH OUT FOR
The one-person firm,
in disguise
Some boutique managers list a full
leadership team on their marketing
materials while nearly all investment
decision authority sits with a single
individual who’s also running the
business. Ask directly what happens
to the strategy if this person were
unavailable tomorrow, permanently.
A vague answer belongs in the duediligence file.
duty a fiduciary standard imposes. This
distinction isn’t a technicality.
It shapes how much ongoing
monitoring obligation an advisor
actually carries after a model or
SMA recommendation is made, and
an advisor should know precisely
which standard governs their own
recommendations before assuming
the due-diligence bar described in
this chapter is automatically the legal
minimum rather than simply the right
thing to do.
Manager Due Diligence
for Models
E
very section in the structure-andinfrastructure chapters ended
with some version of the same
warning: scale isn’t the same as fit, and
a platform’s largest or best-marketed
option isn’t automatically the right one
for a given client. This chapter turns
that warning into an actual process,
the questions that separate real due
diligence from checking a box.
START WITH WHAT DUE
DILIGENCE IS ACTUALLY
PROTECTING AGAINST
An advisor recommending a model
portfolio or SMA strategist retains
fiduciary responsibility for that
recommendation. Outsourcing the
management of a portfolio does
not outsource the duty of care in
selecting who does that managing.
That distinction matters practically.
The due-diligence standard a prudent
advisor applies to a third-party model
should mirror, not soften, the standard
they’d apply to screening a fund
independently.
It’s worth being precise about which
standard actually applies, since
it isn’t the same for every advisor
recommending these structures.
A Registered Investment Advisor
operates under a fiduciary standard,
legally required to act in a client’s best
interest at all times. A broker-dealer
representative typically operates
under Regulation Best Interest,
the SEC standard that requires
recommendations to be in a client’s
best interest at the time they’re made,
without the same continuous, ongoing
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That standard has four legs: the
people, the process, the parent, and
the fees. Skipping any one of them
in favor of a compelling performance
chart is the most common duediligence failure in this part of the
industry, and it’s exactly the failure a
later chapter will spend its full length
picking apart (p. 29).
PEOPLE: WHO’S ACTUALLY
MAKING THE DECISIONS
Model portfolios and SMA strategies are
attached to specific decision-makers,
even when they’re marketed under
a firm brand. Reasonable questions
here include how long the current lead
manager or team has been running
this specific strategy, whether there
has been portfolio manager turnover
