Unit 12 · 8% of the paper
Recommending Model Portfolios & Financial Plans
Turning a profile into an actual allocation, why rebalancing is the discipline that makes it work, and what a review is for. Eight per cent of the paper, and the unit that ties the other eleven together.
In short
- Asset allocation is decided before any scheme is chosen, and it drives most of what a portfolio does.
- Strategic allocation is the long-term mix; tactical is a temporary tilt away from it.
- Rebalancing restores the intended mix, which means selling what rose and buying what did not.
- A model portfolio is a starting point for a profile, not a recommendation for a person.
- Review on a schedule and on life events — not on market moves.
The last unit, eight per cent, and the one where everything before it is applied. A profile from Unit 10 and goals from Unit 11 become an allocation, the allocation becomes schemes, and a review keeps the whole thing honest as circumstances move.
What is asset allocation, and why does it come first?
Asset allocation is the decision about how much goes to equity, to debt, and to anything else — made before any individual scheme is chosen. It comes first because it is the decision that determines most of how a portfolio behaves. Which large-cap fund was chosen matters far less than whether the portfolio was seventy per cent equity or thirty.
This is also why 'which scheme should I buy' is the wrong opening question, and why a distributor who answers it directly has skipped the part that mattered.
Strategic and tactical allocation
Strategic allocation is the long-term mix that suits the investor's profile and horizon. It is meant to hold across market conditions, and changing it should require a change in the investor rather than a change in the market.
Tactical allocation is a deliberate, temporary tilt away from that mix in response to a view on conditions — and the word to hold on to is temporary. A tactical position that is never unwound has quietly become the strategic allocation, without anyone deciding that it should.
What a model portfolio is for
A model portfolio is a ready-made allocation for a typical profile: conservative, moderate, aggressive, or a life stage. It gives a distributor a sensible starting point rather than a blank page, and it makes recommendations consistent across clients with similar circumstances.
It is a starting point and not an answer. A model describes a category of person; the investor in front of you has a specific horizon, specific commitments and a specific tolerance, and the model has to be adjusted to them. Handing over a model unchanged is a recommendation to nobody in particular.
Why rebalancing matters
Markets move the mix on their own. A portfolio set at sixty per cent equity becomes seventy after a strong run, and the investor is now carrying more risk than was agreed — not by decision, but by drift.
Rebalancing sells some of what rose and buys what did not, restoring the intended proportions. It is uncomfortable precisely because it runs against the mood of the moment, which is the reason it works and the reason it is a discipline rather than an instinct. The examination often frames it exactly this way: after a strong equity year, what should be done?
Reviewing a plan
A plan is reviewed on a schedule and on events — a marriage, a birth, a job change, a goal moving closer or being met. Those are the things that change what the portfolio is for.
What should not trigger a review is a market move on its own. Reacting to volatility is how a long-term allocation gets abandoned near a bottom, and the plan existed to prevent exactly that. A distributor's most valuable act in a bad quarter is usually to explain why nothing needs to change.
What the examination tends to ask here
About eight questions, and they pull the syllabus together: what asset allocation is and why it precedes scheme selection, the strategic versus tactical distinction, what rebalancing does after a period of strong or weak returns, and what should and should not prompt a review.