Investments  

Charges more important than suitability in advisers' MPS selection

Charges more important than suitability in advisers' MPS selection

The majority of advisers think chargers are more important than investment suitability when picking a discretionary fund manager, research has found. 

Some 81 per cent of 108 advisers surveyed by RSMR said the key feature of a good provider of model portfolio services was charges, with the same percentage saying performance was also key.

Of those questioned, 72 per cent selected availability on platforms as important, with investment suitability for clients coming fourth as a mere half of those questioned selected this as a key feature.

The survey was conducted by Research in Finance between August 20 and September 9.

James Senior, head of marketing at RSMR, said “While outsourcing to an MPS can provide advice businesses and their clients with a number of benefits, we shouldn’t lose sight of the fact that charges and performance are fundamental to advice business CIPs and the quality of client outcomes.

"In addition, advice businesses we speak to tell us how managing efficiency and costs is an ongoing challenge against a background of regulatory change, PII and Covid, among other factors.”

ESG availability and suitability came further down the list of important factors when picking an MPS provider, with 35 and 31 per cent respectively saying the factors were important.

Quality of investment insights, including webinars and research, was bottom of the list, with just 22 per cent of advisers surveyed highlighting them as important.

The regulator expects advisers to do proper due diligence on their DFM providers as well as choose suitable solutions for their clients. But due diligence should also include costs and charges. 

Sven Radcke, head of data at Research in Finance, said over the last couple of years, the firm’s research has highlighted a trend towards more advice business being outsourced to DFMs. 

“Two key factors that feed into the decision-making process for outsourcing are cost and performance, especially for bespoke portfolio services which are more costly.”

He said for advisers, handing over control of asset allocation to third party providers comes with certain service expectations. 

“Providers need to stay on top of communications and share timely investment updates, for example.”

Earlier this month, Quilter Cheviot dropped its MPS fees by between 30 and 40 per cent as it added eight funds to its service.

A number of MPS providers have also been removing VAT charges in the past year.

In 2020 FTAdviser reported on a ruling by HMRC in the case of Tatton, where the Revenue found the company's model portfolios were exempt from this tax

The ruling threw into question when VAT is chargeable on DFM services and when it isn’t, and how, if at all, it might affect VAT on advice.

Brewin Dolphin stopped charging VAT on its service in October, while in November both Investec and Quilter followed suit. 

Since then, LiontrustCharles StanleyParmenionBrooks MacdonaldHSBCCanaccord Genuity and others have all cut the tax from their charges.