Discretionary Management 

What is behind the evolution of managed portfolio services?

  • List what MPS is and what have been the main drivers of the evolution of MPS.
  • Describe what impact the platform approach has had and increased transparency.
  • Identify how MPS solutions might develop and what impact new entrants will have.
CPD
Approx.30min
What is behind the evolution of managed portfolio services?

The evolution of MPS has been somewhat rapid, particularly over the past few years.

Whether the solutions in this increasingly crowded market can all survive remains to be seen, but the signs are positive as assets under management are increasing across the board.

Defaqto has adopted managed portfolio services (MPS) as the preferred terminology for a portfolio of segregated holdings where all clients in a particular profile receive exactly the same portfolios and, crucially, are traded and adjusted, with a discretionary agreement in place, by the discretionary managers.

The evolution of MPS has been quickening, particularly over the past few years, and Defaqto has witnessed this as it has been collecting data on these solutions for the best part of a decade now.

Key to this evolution has been a shift in thinking from both advisers and discretionary fund managers (DFMs).

The days when MPS were seen as solutions for ‘mopping up’ clients with small pots to invest are largely a thing of the past, although some DFMs still offer solutions with very low investment thresholds, particularly when accessed through a platform.

Nowadays an MPS tends to represent a discretionary manager’s best thinking and they are viable investment solutions for clients with varying degrees of complexity and at most investment levels.  

At the time of writing, Defaqto holds comprehensive asset allocation and quarterly performance data on some 1,500 portfolios across 142 MPS solutions and from 64 discretionary managers.

Chart 1: The MPS evolution

The chart tracks the total number of MPS propositions on the Defaqto database over the past three years and breaks this number down into those solutions held in direct custody with the DFM and those available on a third party platform.

We can attribute their rise in popularity and continued traction in the adviser community to a number of factors.

Fundamentally advisers fall into two camps; those that manage their clients' money themselves and those that outsource. 

For those advisers lacking the wherewithal to physically manage client assets (or indeed preferring not to), the obvious solution is to outsource either to a DFM or a multi-asset fund where all investment decisions are taken by the third party investment specialist.

Outsourcing the running of client money is advantageous to advisers, partly because it reduces risk in their business and partly because it allows them to concentrate fully on financial planning without the ever-present worry of having to explain and justify the occasional wrong decision and falls in value, which can be a hindrance to a long-term client/adviser relationship.

More importantly, it is perhaps advantageous to clients that their assets will be looked after full-time by an investment specialist. This can result in a very positive shift in the client/adviser dynamic in that both parties are working together to find the best solutions.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. The author says, the days when MPS were seen as solutions for doing what with clients with small pots to invest are largely a thing of the past?

  2. How long ago does the author say DFMs appeared very reluctant to hand over formal custody of client assets to adviser platforms?

  3. According to Defaqto’s Engage data the average number of platform partners for a DFM MPS stands at what?

  4. Mr Boyle says we are in the age of what?

  5. Of the 142 MPS solutions Defaqto collects data on, 11 are classified as entirely active. True or false?

  6. Now, 23 per cent of all MPS propositions listed on Defaqto offer an ethical strategy, up from what percentage in 2015?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • List what MPS is and what have been the main drivers of the evolution of MPS.
  • Describe what impact the platform approach has had and increased transparency.
  • Identify how MPS solutions might develop and what impact new entrants will have.

I completed this CPD in

To bank your CPD please complete the form below.

Were the stated learning objectives met?

Why weren't they met?

What did you learn from undertaking this CPD exercise?

Why did you undertake this piece of learning?

Banked!

Congratulations, you have successfully completed and banked this piece of CPD

Already Banked!

You have already banked for this article.

To bank your CPD you must or

Register

One or more questions have been incorrectly answered,
 please review your answers and try again.

Please complete all the above text fields to bank your CPD.

More Investments CPDSee my completed CPDSee all CPD