Milliman launches first custom capital protection overlay solution for model portfolio and dealer group platforms

From

Michael Armitage

Milliman’s new model portfolio strategy allows dealer groups and platforms to apply a rules-based market risk management overlay to any model portfolio’s underlying equity investments.

It marks the first time that model portfolio investment teams and financial advisers will be able to manage equity risk on behalf of retirees and other risk-averse clients while also retaining control of equity investments, whether direct shares, managed funds or ETFs.

Milliman’s Director of Investment Services, Michael Armitage said the innovative structure can be used in several ways, including to develop ‘white labelled’ solutions.

“Milliman’s model portfolio solution meets the needs of investors such as retirees who cannot endure sustained market drawdowns that often occur with equity investments. It also allows model portfolio investment teams to extend their asset allocation capabilities with bespoke, risk-managed solutions across their accumulation and retirement models.

“Milliman has partnered with some of the world’s largest financial firms since the 1990s to deliver similar retirement solutions and this new service now offers an alternative access point for the Australian market.”

Fortnum Financial Advisers is the first firm to employ the solution. It has applied it across the full range of Innova model portfolios available via the HUB24 platform from September 2017.

“This is the first time investors can access a world-class risk management strategy, easily applied to the same wide range of model portfolios they currently use,” said Milliman’s Australian practice leader Wade Matterson.

“The flexibility of the Milliman model portfolio solution will revolutionise the ability of dealer groups and their advisers to provide efficient retirement solutions that are directly aligned with individual clients’ goals.”

Milliman’s model portfolio solutions offer retail investors a more flexible, lower-risk option that uses the same asset protection techniques that Milliman has applied on behalf of clients around the world for over 20 years.

As a retirement specialist focused on sequencing risk and retirement outcomes, Milliman continues to work with leading firms in Australia including Maritime Super, BetaShares, Colonial First State, Pengana Capital and Plato Investment Management.

Milliman’s model portfolio strategy is accessed through an allocation to unit trusts tailored specifically to the underlying model portfolios allocations. The strategy can be applied to any model portfolio structure (including platforms and managed discretionary accounts) and is equally effective against any type of equity holding (including managed funds and direct shares).

The allocations to the risk management unit trusts also allows the strategy to be switched on or off at any time, allowing advisers to make adjustments in response to market conditions or client goals, without having to invest in an entirely different model portfolio. Risk management is particularly important for older investors or retirees given the heightened sequencing risk they face, combined with the need to remain invested in growth assets to help fund longevity of savings through an expected two decades in retirement.

However, risk management is also important to all investors. The recent ASX 2017 Investor Survey found that the majority of Australians are risk averse by global standards, seeking stable and reliable or guaranteed returns:

  • 81% of investors under 35 are seeking guaranteed or stable investment returns
  • 21% of the most risk averse investors expect returns over 10%
  • 41% of investors over 55 are comfortable with some variability in their returns.

The Milliman model portfolio solution utilises Perpetual RE services and Lonsec has approved the unit trusts in their initial August review, noting that fees are more transparent and reasonably priced than most other option-related capital protected products it has reviewed.

“The product overcomes some of the shortcomings of earlier capital protection techniques, some of which became ‘cash-locked’ during severe equity market downturns and investors were unable to participate in any subsequent equity market recovery,” the Lonsec report said.

“Lonsec considers this to be a key feature of the product. Investors are also afforded significant flexibility, with the ability ‘switch on’ and ‘switch off’ risk management overlay at any time.”

Milliman Financial Risk Management (Milliman FRM), which employs over 150 professionals in Chicago, London, and Sydney, provided advisory, hedging, and consulting services across $152 billion in global assets as of June 30, 2017.

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