In the ever-evolving Managed Portfolio Service (MPS) market, staying ahead of the curve is crucial for independent financial advisers (IFAs). Craig Wright from Evelyn Partners shares his insights with IFA Magazine on the significant changes in the industry, the risks associated with outsourcing to MPS providers, and the key factors advisers should consider when selecting a provider. His expert perspective highlights the importance of due diligence, technology, and tailored solutions in navigating the current landscape.
IFA Magazine: What do you think has been the biggest change to the MPS market?
Craig Wright: “Without a doubt, the proliferation of low-cost MPS is the biggest change in the recent market, and it’s something we encourage. For a long time, while there weren’t many MPS providers out there, you didn’t have access to as many adviser support systems or the quality of technology that is currently available. Now that it’s proliferated, we really are able to provide investment services in a more cost-effective way than ever before. However, we’d encourage IFAs to look through the fee smoke screen and compare the full costs after all charges have been applied. After all, low cost doesn’t mean low risk. We’ve also seen a couple of providers, one in particular, with a short track record in the market. They’re gathering inflows based, in part, on performance that predates their launch. We ask advisers to look thoroughly at what is new in the market and find out how investment selection was implemented through all market conditions.”
IFA Magazine: What additional risks are IFAs exposed to when outsourcing to MPS providers?
Craig Wright: “Some MPS providers are shouting about the best approach to the regulatory environment for IFAs working with DFMs, but I feel there are some advisers that might not fully appreciate the finer details of Reliance on Others (ROO) versus Agent as Client (AAC). This is particularly relevant to MPS when you’re using a third-party platform. It’s true that both have a place, but unless the adviser knows the details of both approaches, we could easily see uncertainty, and that’s definitely not what the industry needs. We would much rather see the DFM industry acting collaboratively to attract even more private clients to MPS via their financial advisers.
“An excellent example of industry collaboration is DFM Connect, which Evelyn Partners is a member of. It’s supported by PIMFA, and it aims to create discussion and best practices for the good of the advice and investment industry. They recently released a paper which helps act as an information sheet on the regulatory framework, including the strengths and weaknesses when advisers are deciding if they would like to operate under ROO or AAC, both of which have a place in the industry.
“The other risk that’s never really discussed at length is due diligence on survivability. For example, we operate in a world of due diligence, and I would bet that of the top ten MPS providers, there’ll be a couple of mergers and acquisitions. That’s quite normal. What we would like to see is advisers asking the questions directly and coming up with their own decisions on DFM survivability. It is important to question who owns the firm. Is it PE-backed, or has the owner got a track record of selling in the past? I’m very experienced in this subject, and when M&A inevitably occurs, there’s a significant amount of disruption that the biggest firms will absorb more readily. Either way, it’s certainly an advice piece to inform clients at the time of a merger, as it does make it less attractive to employ a DFM, who is potentially for sale, and I think we need to bring that to light.”
IFA Magazine: What are some of the key things that advisers should be looking for when they’re choosing an MPS provider?
Craig Wright: “Typically, an adviser should be asking what the service proposition is, what the technology they provide looks like, where the services are available, and what flexibility these is to implement a bespoke type of arrangement. I’d suggest asking questions about the skills, with proof being provided from the underlying MPS team. Is it a one-man band? Do they have long term MPS experience? Have they employed a dedicated operations team? What happens if or when something goes wrong? Inevitably, there will be a trade that doesn’t hit at the right time, and that’s just the nature of the market when you’re dealing with 15-20 different platforms. It’s physically impossible to trade at the exact same time on every platform, so you need to have a lot of depth and experience in your operational and admin teams.
“There are a few questions that you could ask when doing your research on firms. Naturally, you’d ask about investment style, track record, and ability to be resilient, but then, ultimately, you’ve got to also understand the fees. The fees need to be transparent, clear and readily available on all levels and in full detail. Understanding fully about their fees is obviously critical, and then you have performance, or rather, performance after fees.”
IFA Magazine: What additional resources do Evelyn Partners provide for advisers to stand out in a crowded market?
Craig Wright: “Technology is a big one for us as we always aim to be at the forefront in terms of having access to the best-in-class technology. Additionally, we’re very proud of the fact that we are always very transparent about every single trade that goes through the portfolios, including all the costs and all of the underlying holdings.
“A further benefit is that we have the luxury of being a large firm and this allows us to easily absorb turnover of sta. Another one of our USPs is that we have developed several different MPS solutions because we know that not all clients of an adviser will have the same style requirements. For example we offer sustainability, low cost and active styles all from the same team.”
IFA Magazine: How has Evelyn Partners’ range changed now, and what are the expectations going forward?
Craig Wright: “The first change centres around rationalising fees and reducing the overall cost of our MPS solutions. We reduced our headline fees about a year ago for the core range and then implemented a promise to keep our OCFs below 45 basis points in our Core range, giving IFAs peace of mind.
“That’s a different approach to some other firms who will shout about a very, very cheap underlying fee but don’t shout so loudly about the OCF, which is equally important. Secondly, we know that not all IFAs will have the same requirements or target market, and so for this reason, we developed five different approaches to MPS, all delivered by the same central team. We have a Core range, which is low cost, as well as an active range, which includes investment trusts as a USP. We have a Sustainable range for responsible-minded investors, and we have MPS direct for advisers who prefer to use Evelyn Partner’s custody and technology solutions. We can provide versions of our MPS on our own platform, so it is possible to have everything together in one place.
“Finally, the largest movement in the market is probably where IFAs are looking to have their brand associated with a manufacturer like us. We can work with advisers to understand what they are doing with their own MPS propositions and potentially manage that for them. At this stage of the conversation, you need to have a very good understanding of the relationship with the consumer duty and whether you’re a co-manufacturer, a co-distributor or both within that particular service.”
Conclusion
As the MPS market continues to evolve, it is essential for IFAs to stay informed and proactive. As Craig mentions, understanding the dynamics of low-cost options, the importance of thorough due diligence, and the need for transparent fee structures will empower advisers to make well-informed decisions. By leveraging advanced technology and tailored solutions, firms can not only navigate the complexities of the market but also enhance their value proposition to clients, ultimately leading to stronger, more resilient advisory practices.
About Craig Wright
Managing Partner – Head of UK IFA Services
Craig manages all aspects of the Evelyn Partners IFA Services proposition team; catering for the needs of financial across the UK and internationally. Craig is based in Evelyn Partners’ London office and joined the business from Ingenious Asset Management where he was Sales Director for 8 years.
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