Model portfolio services have become the default investment solution for many financial advisers – and for good reason: they centralise decision-making, simplify governance and allow firms to scale.
Nevertheless, most MPS are still built around platform mechanics, not portfolio design – and, as such, there is a growing gap between how advisers want portfolios to behave and how traditional MPS structures actually operate in practice. That gap is now starting to really matter.
When platforms start shaping portfolios
Most traditional MPS models are constructed using individual funds and ETFs held directly on platforms. Asset allocation changes are implemented by trading between those holdings at platform level. On paper, this offers transparency and flexibility – in practice, however, it quietly constrains portfolio construction.
Many platforms struggle to accommodate the full investable universe. Some limit the types of ETFs that can be used, others restrict ETFs altogether, while in some cases offshore funds may also be unavailable. Certain instruments are excluded not because of investment merit, but because they are operationally inconvenient.
This has real consequences for clients. Entire parts of the market may be underrepresented or avoided – not because they lack value, but because they are difficult to implement within platform rules.
For more from Alex Funk, find his Choice Words interview here
Even without such challenges, implementing model portfolios still varies widely by platform. Dealing windows, settlement mechanics and trading cut-offs do not always align. Rebalancing introduces friction, delays and periods of unintended cash exposure.
With traditional funds in a model portfolio, the issues are different. Share-class availability often varies by platform, leading to cost differences and inconsistent implementation across what is supposed to be the same model. Over time, these differences compound, creating divergence that has nothing to do with investment decisions – just operational constraints.
None of this reflects weak governance or poor investment thinking. It reflects a structure in which platforms inevitably shape portfolios.
Beyond unitisation
The industry has recognised these issues – and, in response, unitisation is becoming more common across MPS providers. Many firms now package elements of their models into unitised components. An equity component, a bond component, sometimes alternatives. This can reduce some trading and improve tax efficiency in certain contexts.
This approach still leaves a critical decision point on platforms, however. Asset allocation changes are implemented by trading between unitised sleeves. Implementation constraints remain, dealing friction persists, and access to the investable universe and share classes is still shaped by what platforms allow.
For more on this subject, read: MPS v unitised solutions – which has the edge?
This is unitisation applied tactically, not structurally, and why wealth managers are creating other solutions. Our own ‘Efficient MPS’, for example, is a model architecture where portfolios are built by blending multi-asset funds, rather than assembling and rebalancing collections of individual funds or sleeves on platforms. Both underlying fund implementation and asset allocation changes occur inside regulated fund structures, not through platform-level trading.
That distinction matters. Trading takes place where it is cleaner, faster and less constrained. Access to ETFs and other instruments is determined by investment merit – not platform capability. Platforms remain essential for custody, reporting and access, but they should no longer dictate how portfolios are built or evolved. This is how efficiency is pushed beyond what partially unitised models can achieve.
The next phase of MPS
Once strategy is embedded within the fund structure, consistency follows naturally. Every client receives the same investment approach, implemented the same way, regardless of platform or wrapper. There is no model drift caused by availability differences or operational workarounds.
This consistency strengthens governance and simplifies the Consumer Duty conversation: charges are consolidated at the fund level; performance reporting is daily and independently verified; pricing is uniform across platforms and negotiated rebates are reinvested rather than obscured – and value for money becomes easier to evidence because the structure itself is clearer.
One concern often raised about efficient or unitised models is client perception. A statement showing only a small number of multi-asset funds can feel less tangible to clients and seems less diversified than a long list of individual holdings.
“Entire parts of the market may be underrepresented or avoided – not because they lack value, but because they are difficult to implement within platform rules.
The familiar theatre of traditional MPS does not need to disappear – it simply needs to be delivered without reintroducing implementation friction.”
This is more of a presentation challenge, however, not an investment flaw. With the right technology, advisers can provide full look-through transparency. Underlying holdings, asset allocation, geographic exposure and manager detail can all be clearly presented. The familiar theatre of traditional MPS does not need to disappear – it simply needs to be delivered without reintroducing implementation friction.
The idea of efficient MPS is often associated with tax efficiency – particularly in general investment accounts. That benefit is real, but it is not the core argument.
The deeper issue is structural: as the MPS market evolves, advisers should ask themselves a simple but important question: is the structure of my MPS helping me access the full investable universe, deliver consistent outcomes and clearly demonstrate value for clients – or is it quietly constraining all three?
In the next phase of the MPS market, structure will matter as much as strategy.
Alex Funk is chief executive officer of PortfolioMetrix
