How Good Is the Portfolio You Were Advised to Invest In?

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Although suitable and compliant, many advised portfolios lack efficiency due to poor fund selection and limited adviser insight.
Restricted advice models can limit access to better-performing funds.
Some of the most popular funds are among those that consistently underperform.
Learn how structured asset allocation, fund analysis, and FSCS diversification can significantly improve portfolio efficiency.

Many investors assume that because their portfolio is suitable and compliant, it must also be efficient. But in practice, this is often not the case. A large number of advised portfolios fall short of their potential - not due to high risk or poor planning, but because of limited fund selection, restricted advice models, and a lack of in-depth performance oversight.

In many cases, advisers rely on restricted fund ranges that are not actively reviewed for performance. These models often include well-known or popular funds, yet many consistently underperform their sector peers. Without detailed, data-driven analysis, fund selection can become driven by familiarity, scale, or platform defaults rather than quality.

Positive portfolio growth does not necessarily mean you are maximising returns relative to the risks taken. In rising markets, even weaker funds can deliver growth, leading investors to overestimate the quality of their portfolio. This article explores why many portfolios miss out on better returns, and how better fund selection, asset allocation, and structure can improve long-term outcomes.

Why Good Advice Doesn’t Always Mean Good Investing

Compliant financial advice ensures that recommendations are aligned with an investor’s goals, risk profile, and regulatory standards. However, this does not guarantee that the resulting portfolio is efficient, competitive, or designed for long-term success.

Many advisers construct portfolios using standardised models or restricted fund lists that are not actively benchmarked against sector peers. While these may meet regulatory requirements, they often contain funds that consistently underperform - undermining the potential for strong returns.

Efficient investing demands more than compliance. It requires a structured, analytical approach to fund selection and continuous monitoring. Advisers who possess deep knowledge of fund and manager performance are far better equipped to align portfolios with client objectives while optimising risk-adjusted returns.

While some advisers add considerable long-term value, relatively few have the fund-specific expertise needed to build top-performing portfolios. For most investors, assessing this capability is difficult. Fund performance analysis is not a regulated aspect of financial advice, and there is no obligation for advisers to demonstrate how they select or monitor investments.

As a result, many portfolios, though compliant, include underperforming funds that reduce efficiency and limit growth potential. Identifying advisers who adopt a transparent, evidence-based approach to investment selection is key for those seeking better long-term results.

The Limitations Restricted Advice Can Have On Investment Portfolios

Restricted advice limits the range of funds, products, and platforms an adviser can recommend. While still subject to regulatory standards, this model reduces the scope for selecting the most competitive or best-performing investments across the full market.

Many restricted firms are tied to internal fund ranges or preferred provider panels, which can result in portfolios that lack diversification and omit consistently top-performing funds available elsewhere. These limitations are often not clearly communicated to investors, who may assume they are receiving whole-of-market recommendations.

As a result, portfolios constructed under restricted advice models may be deemed suitable, but not optimised - holding funds that underperform their sector averages or carry higher costs. Without access to a broader universe of investments, restricted advice networks such as St. James's Place, are unable to fully tailor portfolios to meet both performance and risk objectives.

For investors, understanding whether their adviser operates independently or under a restricted framework is critical. It determines the level of choice, flexibility, and performance oversight applied to their portfolio - and can directly influence long-term outcomes.

Does Your Adviser Understand Fund & Fund Manager Performance?

While financial planning is a regulated component of the advice process, evaluating fund and fund manager performance is not. This distinction means many advisers may not have the tools, processes, or expertise required to assess whether the funds they recommend are delivering competitive results. As a consequence, portfolios can meet suitability requirements but still include funds that underperform their sector, limiting long-term growth.

A significant number of advisers rely portfolios typically chosen for administrative ease or consistency - not necessarily performance. These models are not always updated using detailed, data-led analysis and may overlook key indicators such as performance consistency, risk-adjusted returns, and peer group rankings.

Assessing a fund’s performance over 1, 3, and 5 years provides a more accurate view of fund quality and manager effectiveness. Without this level of scrutiny, advisers may recommend funds with no clear understanding of how they rank relative to other options in the same sector. And because performance evaluation is not a regulated requirement, there is no formal obligation for advisers to carry out this analysis.

The importance of fund analysis becomes clear when looking at broader fund performance trends. An analysis of 3,983 Investment Association sector-classified funds found that 62% had a history of consistent underperformance, while only 17% consistently outperformed their peers.

IA Fund Performance Rating 2

These figures underscore the importance of detailed, comparative fund analysis in building efficient portfolios - something that many advice models currently overlook.

How Limited Fund Knowledge Can Lead to Poor Investment Decisions

For many advisers and self-directed investors, limited knowledge of fund and fund manager performance often results in decisions influenced by factors such as fund size - typically a reflection of popularity - or brand familiarity. In some cases, well-known funds are included in portfolios due to familiarity, perceived reliability, or platform defaults, rather than a thorough assessment of performance data. While these funds may be widely used, they are not always the most efficient options available, and may underperform compared to lesser-known but stronger alternatives.

5 Top Performing UK Equity Funds-1

*The funds shown are for illustration only and are not a recommendation to invest.

The above tables highlight five UK Equity funds that have consistently outperformed their sector averages over 1, 3, and 5 years, earning a 5-star rating based on performance. On average, these top-rated funds manage £446 million in assets and charge 0.58% annually.

5 Poor Performing UK Equity Funds-1

*The funds shown are for illustration only and are not a recommendation to invest.

In contrast, 5 of the lowest performing UK Equity funds have delivered significantly weaker returns over the same periods. Despite this, they are notably larger and carry higher average charges - demonstrating that fund size and popularity are not indicators of quality, and reinforcing the importance of robust performance analysis in fund selection.

The above tables identifies 5 UK Equity funds that have consistently outperformed the sector average, ranking among the top of their sectors over the past 1, 3 & 5 years receiving a 5 star rating. These 5 top performing funds on average manage £446 million of investor assets and average 0.58% in annual charges.

Why Understanding Fund Performance Is Important

Fund performance analysis, though not regulated, is a core discipline used by experienced investors and high-quality advice firms. It supports the construction of portfolios that are both evidence-based and aligned with client objectives.

The Importance of Fund Performance

Although past performance is not a guarantee of future results, analysis has shown that funds with a strong history of outperformance are more likely to continue delivering competitive returns than those with consistently poor track records.

Comparative Analysis Reveals Fund Quality

Every fund can be measured against other funds in its sector. This comparative analysis over 1, 3, and 5 years helps identify not just whether a fund has performed well, but how it ranks relative to alternatives. High-ranking funds - particularly those in the top quartile - often indicate a well-executed strategy and capable fund management. Conversely, funds that consistently rank in the lower quartiles may reflect weaker strategy or oversight.

Holding Fund Managers Accountable

Performance data provides a practical accountability tool. While it doesn’t predict future outcomes, it helps identify managers who have shown the ability to deliver above-average returns over time. Consistently strong performance may reflect robust investment processes, while long-term underperformance suggests a need for review or replacement.

Whether selecting funds independently or reviewing adviser recommendations, investors benefit from using comparative fund performance as a core part of their decision-making process. A structured, evidence-based approach to identifying quality funds is a key factor in achieving efficient and competitive portfolio outcomes.

The Core Elements of an Efficient Investment Portfolio

Fund and fund manager performance are important indicators of quality, but true portfolio efficiency is achieved when these are integrated with a clearly defined asset allocation strategy and structured protection planning.

Asset Allocation: Structuring for Risk and Stability

The asset allocation model is the foundation of any investment portfolio and plays a central role in aligning your investments with your risk tolerance. A well-diversified allocation across multiple asset classes reduces reliance on any single market area and helps protect against sector-specific downturns.

Over time, different asset classes will grow at different rates, causing portfolios to drift from their intended allocation. Regular rebalancing is necessary to realign the portfolio and maintain its risk profile. In our experience, many self-directed investors - and even some advised clients - neglect this step, limiting portfolio efficiency and increasing unintended risk exposure.

Fund Selection: Driving Long-Term Growth

Once a robust asset allocation is in place, selecting consistently strong-performing funds within each asset class becomes essential to enhancing long-term returns. While fund performance analysis is not a regulated requirement, it is a key area of focus for high-quality advisers.

However, many portfolios are built using fund lists or models that have not been constructed with detailed performance analysis. This can lead to the inclusion of underperforming funds and missed opportunities for growth. Combining a suitable asset allocation with a focus on top-quartile funds helps ensure that portfolios are not only well-structured but also positioned for consistent growth.

Maximising FSCS Protection: A Strategic Layer of Security

Another often-overlooked aspect of portfolio construction is protection under the Financial Services Compensation Scheme (FSCS). Many investors are unaware that investments are covered up to £85,000 per fund manager. By diversifying across multiple fund groups, investors can significantly increase the level of protection available to them.

For example, spreading £85,000 across 10 fund managers provides up to £850,000 of FSCS protection. This approach is particularly relevant for investors who may be exposed to a single provider, such as those with restricted firms that concentrate holdings in their own products.

By combining efficient asset allocation, quality fund selection, and structured FSCS coverage, investors can build portfolios that are not only suitable but optimised for performance, stability, and protection.

Finding The Right Investment Adviser

To ensure your portfolio is constructed with a focus on quality and long-term performance, it’s essential to ask the right, informed questions.

5 questions to ask any would-be financial adviser

Do you give independent or restricted financial advice?
Do you sell your own company’s products or investment funds and if so how I can be convinced they are the most suitable products for me?
What fees do I pay now and how do I pay them and how much do I pay on an ongoing basis?
What initial advice and ongoing service do you provide?
What processes do you have in place to ensure my money is only invested efficiently in high quality investments?

An adviser who can answer these questions clearly and confidently is more likely to have a structured, evidence-based process in place - one that goes beyond the basics and prioritises long-term results.

Could Your Portfolio Do Better?

When asked, many investors believe their portfolio is performing well, but without comparing it to a similar risk portfolio of consistently top-performing funds, it’s hard to know how competitive the returns really are.

As outlined in this article, many recommended portfolios are built using models that lack detailed fund performance analysis. Without assessing fund or manager quality, long-term results can fall short.

Our free portfolio review provides a clear, independent assessment of your portfolio’s quality - highlighting fund performance, identifying potential improvements, and comparing your returns to a similar risk portfolio built with consistently strong performers.

This service will highlight: