IFA Magazine recently partnered with Schroders, Legal & General Investment Management (LGIM) and HSBC Asset Management to undertake a sector-wide reader survey on key questions around advisers’ use of Managed Portfolio Services (MPS). A summary of the key findings is provided.
Today’s increasingly challenging market conditions mean that advisers are looking for enhanced levels of diversification and protection against pressure on their clients’ portfolios.
To gauge readers’ views on the use of MPS as a solution to these challenges IFA Magazine recently partnered with three of the most highly regarded MPS providers.
Our survey was designed to ask readers some searching questions around advisers’ priorities in choosing an MPS provider, what might prompt change during a review cycle and how can MPS providers improve their offering.
Overarching Approaches
Advisers were asked how regularly they review their MPS. 43% of respondents said that they review annually, 21% quarterly, 12% reviewing every six months. Interestingly 23% said that they continuously review on a rolling basis.
Survey respondents were asked to rank in level of importance one of three areas relative to its importance in choosing an MPS Provider and the asset classes in order of preference for inclusion. 43% of respondents ranked fund selection as their priority, followed by asset allocation (33%) and price/charging model ranked in third place (24%).
Responses on the choice of asset classes were evenly distributed between infrastructure (which came in top position) followed very closely by factor/thematic and alternatives. Clearly all three of these are attractive options if they are to be included with an MPS portfolio.
On the question of whether white labelling is an important option, 67% said that it is not, that performance is key and it is the investment managers’ expertise that is needed.
When it comes to whether MPS should have a place in clients’ drawdown strategies, the overwhelming response was ‘yes’ with nearly 80% expressing agreement. Respondents offered a selection of reasons why this is important, highlighting the importance of producing income within these portfolios. The need to achieve long term sustainable growth in drawdown scenarios was also noted, although respondents made clear that it should be specifically set up for the decumulation phase.
Advisers were asked about due diligence partners with a mix of replies indicating use of well-known providers such as FE fundinfo’s MPS Directory, Morningstar, LangCat Analysis and Defaqto. A significant proportion added that they do their own in-house due diligence.
Negative screening within ESG
We asked about negative screening criteria when choosing ESG MPS products. We received some interesting comments on this as shown in Chart 1 (See below), which shows the relative results in terms of each area. Although the usual tobacco, coal, oil, and alcohol scored highly as would be expected, even higher was the response to controversial weapons, military contracts and animal testing.
Our respondents added many comments in relation to whether or not such negative screening is at all effective with some flagging key areas that should form a part of this such as pornography and poor employment track records. Several commented that this is too complex to try to screen for all negative elements, with some adding that they did not screen at all and that they took an ‘all or nothing’ approach at the moment.
An associated question asked whether passive funds with negative exclusions can form a significant part of a viable ESG MPS solution. The response was overwhelmingly in agreement that it can (72%). There was some disagreement, however, with some respondents asking how this could be done in practice given negative exclusions would require active decision making.
One other comment worth noting was that the intentions are good but that it is still too early for ESG funds to achieve the sort of growth achieved by, say, the oil companies.
Price points and charges
A key question asked in the survey was whether an MPS supports a premium price level over a multi-asset fund. With just over 60% responding that it does, many noted that it is essential that the price differential needs to be small and justified.
How can an MPS solution be improved?
This proved to be one of the most interesting questions. The responses were enlightening and could be used by most MPS providers as a commentary on how their offering is perceived as well as where it might be possible to improve.
Many comments related to current price points, so either lowering or maintaining these where they are currently. The need for transparency about costs was also cited, with the importance of providers taking the time to regularly speak to advisers about these.
Providing more information on transactional costs applicable to platforms, along with options for more fund selectors, multi-platform availability and data on the markets, all of these could be part of the regular communications between advisers and providers.
One suggestion was that a level of smoothing might be introduced, although the fund needs to be sufficiently diversified.
At the heart of many of the comments was the request for greater visibility of individual providers and direct communications. In keeping with this, respondents added there is a need to provide clearer front of house documentation, greater use of visual aids to show spread of allocations within the MPS and improvements in the user experience.
One of the questions was designed to pick up current trends and movement in and between MPS and multi-asset. The response here seems to indicate an increase in movement towards MPS. That said, it is clear from the comments that this relates to costs, and this is a major factor in any movement between the two.
Advisers were asked about which investment strategies they might use for clients who have a low risk tolerance with choices between cash, annuity, low risk model portfolio or multi asset funds. A convincingly high majority of respondents favoured a low risk model portfolio (79%) with very little between the other three. Comments mainly focused on the value of using the expertise of investment managers with a central focus being that essential decisions had to be based on what was right for the client.
About the survey
IFA Magazine’s MPS Survey was carried out online, between 22nd May and 5th June 2023 and it generated 125 full completions. The survey sponsors were Schroders, Legal & General Investment Management (LGIM) and HSBC Asset Management.
