Empowering Advisers: Shifting the MPS vs Bespoke DFM Narative

The recent publication of the MPS Proposition Comparison Report 2023 by NextWealth is a must read for anyone interesting in the trends in the MPS and DFM world and proves an invaluable insight into the future trends of Wealth Management and Financial Planning; the focus of what this blog is all about!

In the ever-evolving landscape of wealth management, the growth of discretionary Model Portfolio Services (MPS) has become a defining trend, showcasing its ability to capture a larger share of the market. However, amidst this surge, a critical aspect often overshadowed is the role of smaller, more flexible investment managers in providing outsourced yet personalised MPS solutions for advisers that might not want just an off the shelf approach for their clients.

Consumer Duty Legislation and the Quest for Personalisation

Consumer duty legislation has ushered in a paradigm shift, rightly highlighting client-centricity and transparency at the forefront of the financial industry. As larger firms navigate the complexities of compliance, there arises an opportunity for smaller, nimble investment managers to redefine the narrative. Instead of a ‘race to the bottom’ on fees, boutique DFMs can focus on delivering a bespoke level of service that goes beyond the traditional offerings of model portfolios and focuses on the individual needs of specific advice firms.

Flexibility as a Strategic Advantage

In the quest for strategic positioning, smaller investment managers have a distinct advantage — flexibility. Unlike larger counterparts, nimble DFMs can tailor their services to align not only with regulatory requirements but also with the dynamic needs of financial advisers and their end clients. The essence lies in recognising that while many clients may not require a fully bespoke investment, the adviser, as our client, benefits from a flexible approach that empowers them to provide the best possible advice. Many advice firms had/have in-house investment propositions that are also facing the squeeze of fair value under Consumer Duty, coupled with challenging market conditions it is many are outsourcing their investment propositions but identifying a strategic partner is difficult. The NextWealth report highlights that ‘advisers are looking to allocate more assets to MPSs but work with fewer DFMs overall. The average adviser works with 1.7 DFMs, down from 2.2 in 2022’. So stronger relationships with fewer firms is the way forward it seems.

Collaboration Unleashed

The observed trends in the growth of discretionary MPS present an opportune moment for collaboration between smaller investment managers and financial advisers. By fostering partnerships that prioritise flexibility and personalisation, advisers can co-create investment solutions that are both cost-effective and tailored to the unique needs of each adviser’s client base. This collaborative spirit not only enhances the overall client experience but also aligns seamlessly with the principles of consumer duty legislation, emphasising the importance of tailored advice.

Value in Flexibility for Advisers

Amidst the noise of standardised model portfolios, the true value lies in the flexibility offered by smaller investment managers. For advisers, our clients, this flexibility translates into a suite of tools that empower them to deliver advice attuned to the individual circumstances and aspirations of their clients. It’s not about reinventing the wheel for every client but having the agility to adjust and tailor strategies when needed, ensuring the advice provided remains truly bespoke.

In conclusion, the transformative period in wealth management, marked by the surge of discretionary MPS, presents an opportunity to redefine the narrative. The emphasis shifts from a race to the bottom on fees to recognising the intrinsic value of smaller, more flexible investment managers. By embracing flexibility and personalisation, agile players empower advisers to provide nuanced, client-centric advice, standing out in an industry increasingly shaped by consolidation.

As the market continues to shift, the true fair value may not be in the underlying bespoke investments for clients, as it is not always needed, but providing a tailored approach to each financial advisory business and understand their needs and values. Bespoke approaches at a firm level, MPS for the proposition.

If anything in this blog sparks your interest in a further discussion. Please drop me a message on LinkedIn or an email at tom.hind@o-im.co.uk and I would love to have a chat.