Is the MPS sufficiently well resourced?
This might seem obvious – and it is. Running a high-quality investment MPS proposition requires firms to have significant and dedicated resource, from investment research through to portfolio management, reporting and monitoring, alongside robust platform implementation.
Although technology is playing a role in automating administrative processes, our sense is that advisers should be wary of MPS propositions run by either part-time or small teams. Doing a good and thorough job takes time and is a team effort. Propositions reliant on a single, persuasive individual ‘picking funds’ should give cause for concern.
What would we consider to be small? This will vary by the breadth of the offering being managed, but a minimum number of dedicated personnel of 10-20 and above does not feel far off – ideally with access to resources far greater than that.
What service and support can I expect?
A final note in relation to resourcing relates to investment team access and service. Advisers often find it extremely helpful to speak to the MPS investment team directly, either on an ad-hoc or quarterly basis, to understand the rationale for decisions being taken, market environment, and how portfolios are positioned.
This interaction can be particularly valuable during periods of shorter-term poor performance, in maintaining confidence in the approach and communicating this to end-clients.
Successful MPS providers with hundreds, if not thousands, of firms using their services can find themselves in a position whereby the ratio of staff per adviser firm client is too low to facilitate this access. Asking for the ratio of staff per client firm will give a good proxy for the level of access and support a firm might expect to receive.
How does the MPS actually determine and test asset allocation?
Asset allocation determines the lion’s share of portfolio risk and return over the long-term and should therefore be subject to intensive scrutiny. It can often be overlooked in favour of appealing discussion on specific fund strategies, a focus on short-term tactical shifts, or active single stock selection.
While these aspects can help provide some insight into an MPS provider's approach, they can also divert from the most impactful aspects of their process.
Rather than simply allowing the provider to explain what asset allocation happens to be at any point in time, it can be more helpful to understand how it has arrived at the asset mix. The best providers will have a documented, well-researched, tested and robust methodology to asset allocation, most likely using in-house quantitative tools and modelling, alongside the judgement of experienced investment personnel.