The cost of MPS
01 June 2015
David Boyle – Funds and DFM Researcher
Managed portfolio solutions (MPS) give clients access to discretionary management services at a price point and investment level that reflects the lower levels of service you’d expect to receive when investing in ‘off-the-shelf’ risk-aligned models as opposed to a bespoke investment solution.
Trend towards outsourcing generates product choice
Our latest research indicates that 43% of financial advisers now outsource their investment proposition. And advisers increasingly see MPS as a popular outsourcing solution, especially as there's plenty of choice for their clients.
Of the 185 discretionary propositions that Defaqto currently researches, as of May 2015, 30% have been classified as MPS on a platform and 28% as direct MPS, which are those that can be accessed via third-party-wrap platforms and those available directly with the DFM.
Platform versus direct
Whilst many of the propositions are available both directly with the DFM and on platform, and are identical in composition, there are distinct differences.
Let's look at service fees and minimum investments first:
|MPS direct||MPS on a platform|
|Service fee @ £100,000||0.68% + VAT||0.38% + VAT|
|Average minimum investment||£78,900||£4,600|
In addition, for MPS on platforms, a platform fee payable to the platform provider applies, typically 0.3% + VAT. As the UK platform market has seen some pricing pressure in recent years, pricing structures tend to be competitive.
Platforms offer a range of tax-efficient wrappers, including NISAs, SIPPs and offshore bonds, all of which can be used in conjunction with MPS solutions. Reporting is carried out via that platform (all have online functionality). However, this may be limited to a simple ‘headline’ figure rather than x-ray holdings, accompanying transaction histories and asset allocation breakdowns. As a result, platform valuations may lack the transparency required to better monitor a client solution.
Platform solutions allow advisers to keep track of their existing clients at a glance as well as providing the functionality and flexibility to cater for all the likely needs of the client. Platform solutions also allow clients with considerably smaller investment pots access to discretionary management, with the average stipulated minimum investment just shy of £5,000 and an overwhelming 62% of platform MPS solutions on the Defaqto database stating no minimum investment.