There is increasing speculation as to whether the adviser market is closing in on what is being termed ‘peak MPS’. On the face of it, this seems an odd debate – after all, every bit of data continues to point to the extraordinary growth of MPS, and it remains, by some margin, the most successful investment product of recent times. Yet, anecdotally, there are the whisperings of a shift towards unitised products while the new FCA review may deliver another barrier to growth.
As mentioned, all the latest research points to the ongoing and relentless rise in the growth of model portfolio services. The lang cat’s SOTAN adviser research, for example, shows MPS remains the most popular investment proposition – and at a notably higher percentage than last year. Approaching half (44%) of all advisers the firm surveyed used MPS for all or most of their clients.
NextWealth data offers a similar picture, with its latest MPS Comparison Report showing assets in discretionary MPS growing by 36% in the year to 30 September 2024. ISS MI UK Research from April of this year also pointed to MPS as the solution of choice, with 40% of the market – up 20% from last year.
Against such a backdrop, suggestions MPS demand has ‘peaked’ would seem well wide of the mark. As Terry Huddart, digital director at the lang cat says: “Every time I speak to an advice firm through the lens of our Analyser tool, the majority seem to be already using at least one MPS or are in the process of going that way. Running their own models is becoming a minority sport.” In terms of the product lifecycle, he adds, MPS is “clearly – to me at least – still firmly in the growth phase, way past introduction, of course, and probably some way from the maturity phase”.
“It is still up for debate whether the final winner will be MPS or unitised multi-asset – plus, of course, there may be an entirely separate solution that has not been considered yet.
The majority of advice firms already seem to be using at least one MPS or are in the process of going that way. Running their own models is becoming a minority sport.”
Nevertheless, there are data points that could at least suggest the intensity of that growth is slowing. In the ISS MI UK Research, for example, it is clear that unitised multi-asset products are growing more quickly – 26% versus 20%, albeit from a lower base.
“We have seen MPS grow aggressively and we have seen a taper,” says ISS MI’s EMEA research lead, Benjamin Reed-Hurwitz. “Is it the pause before another wave? A big part of it is not just whether it is used at all, but the intensity of that adoption. There is still a fair bit of movement on the idea of centralised investment propositions and what they should look like. As Consumer Duty has been implemented, will there be more changes to IFA practices?”
Huddart says the lang cat’s data suggests growth is not accelerating, with the level of growth similar from year to year. “It is not necessarily snowballing year on year,” he adds, “It is more a continual, if gradual, shift.”
Room for improvement
A number of factors could influence further adoption of MPS – the first being the well-documented problems of implementing them on platforms. This has seen some investors suffering periods out of the market and investors within the same model sometimes seeing different performance. Attempts to minimise these problems appear to have led to some commoditisation in MPS options, with overlap between models.
Then there are the ‘low-occurrence, high-irritation’ problems such as ‘excess reportable income’ – in essence, the profit earned by an offshore fund that is not distributed to investors, whether as dividends or interest. Preya Patel, managing director at Raw Knowledge has written for Wealthwise about the issue, pointing out that if ERI information is missing or recorded incorrectly on a tax return, an investor can be fined up to 200% of the tax due, plus interest and potential late-payment penalties. Offshore funds are surprisingly common within MPS, being included in around 60% of models.
Another key tax problem is capital gains tax. Successive governments have pared back allowances, leaving clients exposed. Furthermore, it creates a reporting problem, with investors needing to report every rebalance for CGT purposes.
There are still new MPS providers coming to market just now and, if the platform sector is anything to go by, provider numbers could just keep increasing.”
Finally, there is the impending FCA review. In February, the FCA announced it would undertake a multi-firm review of MPS to look at how advisers are applying Consumer Duty. The regulator argued the review would provide confidence that investors were receiving good outcomes from MPS – yet there is always the danger the FCA takes issue with some of the problems facing MPS and is heavy-handed about tackling them.
All these factors could slow growth. There is also some anecdotal evidence that advisers are being more measured in their adoption, with Huddart noting: “I have spoken to a few advisers who have decided to revert back to own models as they have found the MPS was not doing what it said on the tin.”
No ‘either/or’ situation
For his part, Reed-Hurwitz says ISS MI’s research indicates that, for many firms, this is not an ‘either/or’ situation – for example, they may offer unitised products for investors who have assets held outside a pension or ISA wrapper.
“Technically there is a lot of room for growth but the intensity of adoption of MPS has varied quite considerably,” he adds. “When it comes to multi-asset funds, almost every IFA – at some point and at some level of its business – has used a multi-asset fund. Many firms use these solutions for different parts of their business and we still see quite a lot of growth for each of the solutions.”
This view is supported by James Sullivan, head of partnerships at Tyndall, who says the business has seen demand for unitised solutions alongside its customised investment offering. This likely reflects the difficulties highlighted above as well as the simple reality that advisers need different options for different clients.
New launches are showing no signs of slowing although Huddart believes there is likely to be some consolidation in terms of providers. “There are so many providers and most offer multiple MPS ranges, so it might consolidate to fewer providers,” he reasons. “That said, there are still new providers coming to market just now and, if the platform sector is anything to go by, provider numbers could just keep increasing.”
Reed-Hurwitz says it is clear we are in a “multi-asset solution age” but it is still up for debate whether the final winner will be MPS or unitised multi-asset – plus, of course, there may be an entirely separate solution that has not been considered yet. “Solutions providers are moving to a mindset of offering the complete shelf and having a range of options,” he adds.
There are cracks in the MPS edifice but the market would still appears some way off from ‘peak’. The FCA review may prove disruptive while platform problems and commoditisation may deter some advisers – some or all of which may reshape the market. For the time being, though, demand remains strong for multi-asset solutions of all kinds, including MPS.
