Model Portfolios  

MPS use to increase in next two years

MPS use to increase in next two years
(Burak Kebaber)

Model portfolio use is set to increase over the next two years as wealth managers search for greater efficiency.

Almost half (46 per cent) of wealth managers expect to use MPS more extensively, according to research by Cerulli.

Of those surveyed, 2 per cent said they plan to decrease their use of MPS over the period, with 14 per cent saying they do not use MPS for their clients. 

The research showed that the main driver of increasing adoption of MPS is a desire for greater efficiency, with advice firms looking for external solutions to enable them to focus on core financial planning rather than investment management. 

Director of European asset and wealth management research at Cerulli Associates, Fabrizio Zumbo, said the increased use of model portfolios, from an adviser perspective, is the simplification of propositions and business, allowing for greater efficiencies and cost reductions.

“Advisers can also ensure that their clients are invested in line with the house view, creating greater consistency of client outcomes.”

The research showed that the most common approach is to alter an in-house MPS model according to clients’ needs, followed by using models developed by a third party and altering as required. 

“The ability to create a specific index for a fraction of what it would have cost 10 to 15 years ago has prompted a debate as to whether greater use of model portfolios could signal the beginning of the end for mutual funds,” Zumbo said.

Cerulli highlighted the view that model portfolios are complementary to mutual funds, rather than a replacement for them. 

“Asset allocation and manager selection are key features of model portfolio services and will drive flows toward mutual funds,” it said.

Yesterday (June 7), Vanguard expanded its Lifestrategy brand with the launch of two model portfolio ranges and on the same day Aviva Investors launched its first-ever MPS, in partnership with SimplyBiz.

sally.hickey@ft.com