It is a sign of the times that there are more managed portfolio services available through a platform than there are direct with the discretionary managers.
Some 80 per cent of the MPS on platform propositions have been launched since the beginning of 2010, so what has been going on in the market over the past five years to encourage the DFM marketers to explore this distribution channel?
We should not be surprised that the peak for launches was 2010-2012, coinciding with the Retail Distribution Review (RDR). Adviser firms were reviewing their investment propositions to ensure they were offering suitable, compliant and robust options for the new distribution landscape.
With discretionary firms already looking at the retail market, having seen the enormous rise in assets under management (AUM) of multi-manager funds, they will have concluded that there was a growing appetite among advisers to outsource investment. A perfect storm.
| Key figures |
Defaqto’s adviser tool, Engage, covers some 190 discretionary propositions from 82 discretionary firms. There are 77 bespoke portfolio services, 52 Managed Portfolio services (MPS) available direct from the discretionary firms and 61 Managed Portfolio Services available on adviser platforms. |
Closer examination of the market as it stood, showed that DFMs had to accept that, to successfully break into the retail market, their propositions would have to be made available on adviser platforms. This meant giving up custody of the assets, which was a significant hurdle to overcome as discretionary firms had been traditionally measured by the amount of assets they had in custody.
Although this was perhaps as much a philosophical as a technical hurdle, there is no doubt that this slowed down significantly the DFM/platform partnership growth. Today there are still DFM firms that steadfastly refuse to offer their solutions on a platform. Equally, there are those that only make their discretionary solutions available through a platform. This latter category is the fastest growing, with 25 out of the 61 we cover only available through a platform.
It is important for advisers to understand the history behind this market evolution. Being present in this market or not, reluctantly or not, is not so much a sign of capability or expertise, but more representative of a philosophical standpoint around custody of the assets.
So, having established that MPS on a platform is a growing market and a serious consideration, how should advisers approach their due diligence? At the highest level there are three considerations:
1) MPS on a platform combines two services (3 if tax wrappers are included): both services and any tax wrappers employed all have to be suitable for the client.
2) Whether or not the MPS is available through a platform, the same due diligence on suitability should apply.
3) If advisers are considering MPS through a platform and are basing their due diligence on the direct versions, awareness of the potential differences should be factored in.
Where to start?
One of the statements of good practice within the Financial Conduct Authority’s policy statement PS 11/9 (Platforms – August 2011) implies that advisers can start due diligence with what is available on their preferred platform.
