Competing with multi-managers
We have witnessed discretionary firms working very hard to compete with multi-managers and growing the kind of adviser support that is already provided by fund management companies.
It is notoriously difficult to get industry figures for discretionary assets under management but I would suggest that the growth experienced by discretionary firms over the last 5 years is equivalent to the growth experienced by multi-managers that took them from £15bn in 2004 to £90bn in 2013 (first year of RDR implementation).
Perhaps the biggest leap forward in adviser DFM consideration was the availability of MPS portfolios on adviser platforms, as they are at the heart of most adviser investment business.
Once DFMs accepted that they were losing custody of the assets to the platform, but would still be paid for the management of the portfolios, this opened up the opportunities for the discretionary firms.
In the meantime, what is it about discretionary management that has sparked so much interest from the adviser community?
There is obviously bespoke portfolio management which has always been at the heart of the discretionary industry, perceived as high on personal service and ideal for clients who’s affairs require close personal attention. For many, it is the kind of client/manager relationship that can be aspired to.
With minimum investments usually commencing at £250,000 and up, bespoke portfolio management is not really the kind of solution that is going to be accessible to the majority of potential clients.
Step forward the Managed Portfolio Service! Still a segregated portfolio of holdings, but crucially they are usually structured to a targeted risk or return profile.
Clients, or advisers on their behalf, would match to an existing MPS portfolio that most meets their needs. This means that similar to a fund, all clients in a particular portfolio will have the same portfolio.
Implication for advisers
In truth, an MPS portfolio is not very different to a multi-asset, multi-manager fund. There are some tax treatment differences on trading and an MPS solution will retain some elements of the bespoke service, usually in-depth of reporting and up to date portfolio visibility.
Some may even view MPS as a stepping stone to full bespoke discretionary management at a later date.
I have read and commented on what seems to be acres of column inches reporting on the need for deeper due diligence when selecting a discretionary service for a client, or more likely these days a particular segment of clients.
The implication is that advisers need to embark on a due diligence exercise that is far deeper and more complex than they are used to.
