Today we published our annual Discretionary MPS Proposition Comparison report. The report is available for purchase (data providers get a free summary as do financial advice professionals on our research panel).

Having interviewed dozens of DFMs, analysed pricing information on 307 portfolios and compared asset growth for 38 DFMs, here are some of my reflections on this part of the market:

• Discretionary MPS is among the most widely used investment proposition among UK financial advisers. It has seen rapid growth over the past few years. The 38 DFMs we profiled in our report account for £95bn in assets.
• It’s a crowded market with many new and planned entrants. There are 189 DFMs offering MPS across the 19 platforms we reviewed. If you remove the 73 on only one platform, that leaves 116.  DFMs tell us that differentiation is a key challenge.
• Technology is woefully underused in this part of the market. Too much operational and execution risks exists in the last mile – rebalancing models on platform. Some DFMs on some platforms are making good use of tech but more needs to be done. All instructions should happen over API. One of the challenges is figuring out who should pay.
• There is a huge amount of pricing pressure – particularly on the MPS or annual service fee. The annual MPS fees tend to be clustered around 20-40 bps. OCFs are more varied. Financial advisers should consider all-in costs (MPS fee + OCF) when comparing DFMs. We hear there isn’t as much pressure on OCFs. We found evidence that lower costs are influencing flow: DFMs with the lowest overall charges (MPS fee + OCF) are growing fastest.