The model portfolio service (MPS) sector has gone from strength to strength over the last few years, with the market recently passing a whopping £141bn in size, according to data from NextWealth. There are now literally hundreds of providers looking to ply their wares in this space as new firms have entered and large asset managers have launched their own solutions.
Amid all this activity, a sub-genre of MPS has been dominating growth in the sector. Some call it ‘tailored models’ – for our part, we say ‘insourcing’ – but, whatever label you give it, a lot of investment providers were scrambling to launch their own version of the offering over the course of 2024.
For the uninitiated, insourcing relationships see investment managers build and maintain models that are unique to an advice firm, or in some cases, their client segments. Whereas, by my count, there were only a handful of providers offering insourcing services even two ago, now it seems half of the investment manager market are claiming to provide a version of it for IFAs.
On the face of it, more competition and more choice is good news for advisers and their client – the snag being that insourcing is a specialist sport. For a large portion of the investment market this is a very nascent service and creating and running an off-the-shelf MPS is very different to building and maintaining a genuinely bespoke service for multiple adviser businesses.
“Creating and running an off-the-shelf MPS is very different to building and maintaining a genuinely bespoke service for multiple adviser businesses.
Genuine partnership
Insourcing relationships have to be seen as a genuine partnership, requiring buy-in and commitment from both the advice business and the investment manager. Yes, there are ‘lite’ versions of the relationship where the provider’s standard MPS offering is ‘re-badged’ or ‘white-labelled’ to incorporate the advice firm’s brand. We saw plenty of these offerings launched throughout 2024 – but there is a strong argument this is not insourcing in its proper sense.
True insourcing has to involve developing models specifically for an advice business. This usually means evolving their existing advisory models through careful asset allocation analysis, or by tailoring portfolios from scratch, if they want to find an alternative for money invested with bespoke discretionary fund managers (DFMs).
These are the two areas from which we see advisers moving the most assets. Either they have decided they want to spend more time on financial planning – and thus they are choosing to partner with a DFM instead of continuing to run their own advisory model – or, given the demands of the Consumer Duty environment, they are struggling to justify the high fees of bespoke DFMs. Insourcing offers an effective and appropriate alternative to both these approaches – and at a lower price point.
Realistic targets
With so many DFMs and MPS providers cottoning on to the growing trend that is insourcing over the course of 2024, this market only looks set to continue its growth in the coming year.
Advisers should beware, however. As we head into the new year, there will be plenty of firms promising the world on insourcing, but advisers need to ask the right questions to gauge what is realistically deliverable. Track record and checking references from existing advisers using the service will be key here – which firms have actually delivered good outcomes for existing clients through insourcing relationships?
It is important for advisers to note, too, that insourcing does not just mean handing all the responsibility to the investment manager. Although there are plenty of efficiencies and time-savings to be had for advisers in these relationships, they certainly (and intentionally) should not relinquish all responsibility in the partnership.
It takes two to tango and the portfolios will only evolve and develop in the right way when advisers continue to engage properly with the process. After all, it is their name on the models and they need to make sure they are still catering appropriately for their client needs.
Insourcing became a huge trend in 2024 and it should only grow further as we move through 2025. This is an exciting opportunity for advisers to deliver good outcomes for their clients and strengthen their brand – but it needs to be done the right way with a firm that is culturally aligned to them, working in genuine partnership.
Ben Peele is managing director of PortfolioMetrix
