'The MPS world will see more consolidation'

'The MPS world will see more consolidation'

The chief investment officer at Schroders Investment Solutions has said he expects there to be an increase in merger and acquisition activity among model portfolio firms.

Speaking to FTAdviser, Alex Funk said more consolidation was needed in the MPS world.

“There’s definitely clear winners, some bigger players out there, but there are some smaller players that will form part of the M&A world eventually,” he said.

“If you look at the whole adviser market post-RDR, the consolidation has just been phenomenal.

“I think that’s just common for any business and it’s something we’ve really seen in the adviser market already.”

Funk is chief investment officer of the investment solutions business launched by Schroders in May this year.

The company offers lower-cost model portfolios and multi-asset funds, with products available on a range of platforms.

The MPS range includes Schroder Active, Strategic Index and Sustainable portfolios, offering an annual management charge of 15bps.

Each of these have between six and nine model portfolios spread across six risk ratings. An income model portfolio will also be available.

Schroder Investment Solutions will also include two ranges of multi-asset funds, the Schroder Tactical portfolios and the Schroder Blended portfolios.

The Tactical portfolios range will be capped at 29bps, and will enable access to a series of Schroders funds as well as lower-cost passive instruments where appropriate.

The Blended portfolios range, which is whole of market, have been rebranded from Schroder Portfolios and will be allocated to a mix of active and passive investments.

Funk said the company's scale allows it to offer low fees on its MPS products.

“Based on our scale, based on what we want to offer, we think [by charging 15 basis points] we can run an efficient and profitable business, and we can continue to invest in value-added service,” he said.

“That just happens to be one of the most competitive challenges in the market.”

He added that if more advisers or model portfolio managers were to come out and say they were running the same models for five basis points, Schroders would not change their price.

“We think our 15bps, at our current level of scale, which is about £4.3bn, we’re running profitably, independently, on a non cross-subsidised basis.

“And therefore we can invest in adding more value for investors or advisers going forward.”

He added that he is aware that advisers are in the driver’s seat and cost is a big challenge for them.

“So we need to be as supportive as possible and use our scale in order to get that.”