A key feature of Sentinel Managed Portfolios is the fee structure. Sentinel uniquely charges for its management by sharing in the investment returns that it generates for each client.
This change in fee structure is a significant evolution forward from the traditional means of charging in stockbroking and funds management because it aligns the interest of the Investment Adviser with the interests of the client. Traditionally, stockbrokers are personally remunerated by sharing in the brokerage charged on the transactions of their clients. This means that the motives of a stockbroker are at odds with the interests of their clients – that is, they are incentivised to create transactions but not necessarily returns. Similarly, fund managers are remunerated by charging a percentage rate on funds under management which again aligns their interests to collecting funds rather than generating returns on those funds.
By changing this remuneration model and instead sharing in the returns of it clients, Sentinel has been able to create a true alignment of interests. Among other things, this importantly means that if Sentinel doesn’t generate positive returns for its clients it doesn’t charge for its management.
From the client’s point of view, they understand that there is no advantage in Sentinel executing a transaction and therefore the only motives for buying or selling are if it’s best for the client – either to generate returns or protect investments.
From Sentinel’s point of view, it removes the ‘friction’ of brokerage which previously inhibited investing in the most flexible and effective way for the client. Without the overriding cost of brokerage, Sentinel is able to more quickly, easily and effectively adjust holdings, and invest to achieve better outcomes. This ability to “Actively Manage” cannot be understated.