MPS is growing faster than the platform market and costs for clients are falling. These are two key findings of NextWealth’s latest MPS Proposition Comparison Report, designed to provide insights and trends into how the advice profession is managing client investments.

The report finds that assets in discretionary MPS grew 12% in the year to 30 September 2023 compared to a 9% growth rate for adviser platforms over the same period.

Heather Hopkins, Managing Director of NextWealth comments: “This increase suggests that while the overall market pie expanded by 9%, discretionary MPS has managed to secure a larger slice, outperforming the broader adviser platform market. It highlights that discretionary MPS remains a strategic growth driver within the wealth management sector.”

Costs and charges continue to fall

The average price paid by end clients of MPS fell again to 0.60%, down from 0.67% in 2022 and 1% in 2021.

Heather Hopkins comments: “We’re seeing some big savings for clients. They now pay an average of 0.40% less on an asset-weighted basis for discretionary MPS than they did in 2021. DFMs that charge less are growing assets more rapidly, a similar trend to last year. Firms charging a combined MPS fee and OCF of less than 0.80% grew by an average of 8% in the year to Q3 2023. This compares to negative growth for those charging 0.80% to 1% and 1% growth for those with charges over 1%.”

The report finds that the average OCF has fallen by 35 bps in the past three years to 40bps (on an asset-weighted basis).

Heather Hopkins comments: “Some firms are using a fettered fund range or an allocation to in-house products to bring down fund charges. Surprisingly, we did not see a shift away from active funds this year. There has been a 1.9% increase in allocation to active.”

While the market size has grown, the number of DFMs that advisers work with continues to fall and this trend has accelerated with Consumer Duty. Advisers work with an average of 1.7 DFMs, down from 2.2 last year.

Market dynamics impacting MPS

 The report provides detailed insights into a range of issues affecting MPS. Some of these include:

Trend to outsourcing accelerating.

• Financial advice firms are focusing on planning. Younger planners are more likely to outsource.

Consolidation and panels

• Mergers and acquisitions in financial advice businesses continue with a greater focus on ‘consolidation’ of those businesses post-sale.

Ratings agencies

• Cost of risk ratings and portfolio mapping is a key challenge for DFMs.

Regulatory change / Consumer Duty

• Consumer Duty has been an opportunity, prompting a further wave of outsourcing.

Investment performance

• Most DFMs have struggled to deliver strong investment returns, which in turn affects flows.

Cash rates

• Advised clients hold an average of 8% of assets in cash. One quarter of advisers expect that to increase in the next 12 months.

Co-manufacturing rules

• Co-manufacturing rules under Consumer Duty are pushing more firms to outsource.

Price pressure

• DFMs are being squeezed on price.

Changes to CGT allowance

• CGT allowance changes may encourage greater use of multi-asset funds, in particular for assets in a GIA.

Heather Hopkins comments: “This year’s report highlights the competitive nature of investment solutions, with MPS providing an increasingly attractive route for the advice profession. Financial advice firms are experiencing some significant challenges with an onslaught of more regulatory change expected. Our report provides insights for the both the investment and advice sectors to help them better understand the UK discretionary MPS market, including for strategic planning, market assessments, board reports and broader general research purposes.”