Is multi-asset killing the need for discretionary MPS? This was something we set out to discover in our recent Multi-Asset Distribution Dynamics report.
Multi-asset funds are widely used but they attract a smaller proportion of client money compared to MPS or adviser managed models. We found that among a cohort of advisers (31 per cent), they are the main solution used, with many of these blending two or more multi-asset funds together to form a portfolio.
Among the rest, they are used as appropriate to manage caoital gains tax concerns, for smaller client portfolios and to access specific investment objectives.
A solution for clients with smaller portfolios
Advice comes with a price tag, so the need for simple solutions for clients with simple needs is growing.
It’s a headache for consolidators in particular. They’ve bought large books of business that have a mixed profile of clients. They need solutions across the various segments. For younger accumulators, what one of our interviewees called ‘dreamers’, the opportunity is to give them a solution that meets their needs while they grow their wealth. When their requirements become more complex a new solution may become appropriate.
The strategy from the asset manager must be nuanced though. Large consolidators may be interested in sub-advised solutions. Some will buy-in strategic asset allocation models from third-parties. Smaller firms will want off-the-shelf solutions.
There is also a need for solutions for retired clients with smaller portfolios. Asset managers with insured funds and experience managing DB schemes will be able to offer expertise to support developing a product for clients drawing down their wealth.
The challenge in both cases is to make the business case. The asset pool will be smaller but for accumulators in particular, the persistency of those assets may be strong. According to the CFA, the average holding period for a fund is 4.2 years.
Retaining assets for a few more years can make a big difference to the bottom line.
GIA to manage tax liabilities
The best opportunity for multi-asset funds is within the GIA for unwrapped assets. The challenge is that firms using discretionary MPS show a preference for consistency of style and approach. Many multi-asset fund providers have already launched MPS (ie LGIM, Vanguard, Blackrock, Aviva, M&G). I expect more to follow suit.
The advantage is the ability to offer a solution across tax wrappers. It’s important to get the story right – you need to be able to articulate what it is you do. Are you a multi-asset manager that is wrapper agnostic, for example? You can offer your investment expertise in an MPS, wrapped fund, outsourced strategic asset allocation model, etc.
This will be a step too far for some asset managers who prefer to be arm’s length from suitability and portfolio rebalancing nightmares on platform. Many DFMs are launching unitised or wrapped versions of their models. Why let them eat your lunch?
Several years ago, I interviewed for a job with an asset management firm. This was before I set up NextWealth. The interview was in a global asset management firm with oodles of multi-asset fund expertise. I made the case in my interview that the firm should launch an MPS. The firm has the credibility and expertise as a multi- asset manager, why hand the buying power to an intermediary (the DFM in this case)? Needless to say, we went our separate ways (good news for both parties) – the firm is now a loyal client. But was I right?
