A call to reduce friction and risk in the management of MPS on platforms

Platforms were built to manage money for financial advisers and their clients, rapidly taking the place of individual paper application forms and manual ring-rounds to pull together client valuations.

The growth in advisers’ use of outsourced investment solutions since the Retail Distribution Review (RDR) has demanded that platforms invest in the functionality to support the management of money via a third-party discretionary fund manager. Advisers have been running in-house model portfolios since the early 2000’s; discretionary model portfolio services (MPS) are a more recent investment solution.

Current processes to manage these models were not designed for the expansion in volume and complexity that we have seen. This paper sets out the on-going challenges faced by DFMs in managing models on platforms. Solving these challenges will help reduce errors, cost and in turn deliver a better proposition for clients.

NextWealth data show that assets in discretionary MPS grew 28% in the year to March 2024, to a total market value of £123bn.

The future holds not just the promise, and challenge, of greater volumes of assets, but also additional customisation and personalisation of models.

In this paper, we explore the problems, solutions, obstacles and opportunities for the industry to improve the robustness and consistency of the management of MPS on platforms.

Rather than focus on whether the effort, responsibility, risk and cost can be nudged up or down the delivery chain through various solutions, we concentrate on the end-client perspective, pulling up the proverbial “empty chair” to each scenario, and asking, “is this the best we can do?”.

The purpose of this report is to galvanise the change-makers at advice firms, discretionary managers, platforms, and solutions providers to act now to improve how fair value and consistent outcomes are delivered to clients through MPS.

Methodology

The findings presented in this whitepaper are based on NextWealth’s data collected from DFMs, in-depth interviews and our knowledge and expertise on the UK financial advice, DFM and platform market:

• 10 in-depth interviews with representatives of platform tech providers, platforms, portfolio management software providers, discretionary fund managers and financial planners, plus additional supporting conversations
• Data is shared from NextWealth’s MPS Comparison report, published in December 2023, which gathered data from 41 DFMs as well as a survey of 244 financial advice professionals and from MPS Asset Update, published in June 2024 by NextWealth, which gathered data from 51 DFMs

You can download a full copy of the report by completing the form.