Discretionary model portfolios run by third-party wealth managers are now the leading investment strategy among financial advisers and the default solution for many of them. Since 2020, their share of advised assets has doubled, according to Platforum’s latest research, UK Financial Advisers: Investment Propositions.
Three key factors are currently driving advisers towards these model portfolio solutions:
- Consumer pressure: Advice firms are starting to feel more push-back from clients on the costs of investing. Clients are feeling the impact of continuing inflation, higher interest rates and a rising tax burden. Third-party MPS, particularly passive and blended portfolios, can reduce the overall cost of investing, especially where advisers can use scale to negotiate preferential rates from wealth managers.
- Consolidation of the advice market: Advice firms that have organised their clients into third-party MPS make much more attractive targets for acquisitive consolidators. They are more efficient and it’s easier to convert these MPS portfolios into the even more profitable in-house solutions. Higher interest rates have slowed M&A activity, but they have accelerated consolidators’ need to integrate their acquired businesses and make them slicker and sale-worthy.
- More active regulatory scrutiny: The need for advisers to focus on value for money for their clients under the Consumer Duty initiative has prompted firms to review their advice propositions. MPS costs have come down over the years and are now often cheaper than running in house advisory models, after allowing for the administration and business risk involved.
The advice market is at an inflection point, shifting from traditional advisory investment services towards discretionary investment solutions. Financial advisers now often describe investment advice as just one component of the value they provide their clients, rather than their central role.
As one adviser remarked during a roundtable discussion: “We’ve come a long way from poring over Money Management tables with a very long ruler and a yellow highlighter.”
Platforum will soon publish UK Financial Advisers: Investment Propostions, covering the development of advisers’ investment approaches. For more information, please get in touch.