The benefits of MPS: why you shouldn’t let your clients move to cash

by | Feb 6, 2024

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Here we bring you a summary of expert insights on the benefits of MPS as opposed to cash or fixed interest and much more. The content is derived from the IFA Magazine webinar of the same title, held at the end of 2023 and which we’re sure will help IFA Magazine readers when handling those difficult client questions and objections.

Our final IFA Magazine webinar of the year proved to be one of our most popular ever with record numbers tuning in live. The conversation touched on one of the most talked about topics of 2023, cash vs investing. With such significant geopolitical and economic challenges facing investors today, many advisers’ clients are, understandably, concerned about the risks to the value of their portfolios.

Rather than going to cash or fixed interest, our recent webinar called upon the opinions of several experts to answer the question, how can MPS help you and your clients to navigate such political and economic events?

Expertly chaired and hosted by Chris Curtis, Community Development Manager at Asset Risk Consultants, during the webinar Chris spoke to our two guests, Alex Funk, CIO at Schroder Investment Solutions and Simon Taylor Head of Strategic Partnerships & Platforms at Investec Wealth & Investment.

 
 

With such a wealth of knowledge to draw on, the conversation was interesting and informative. Chris made sure to get to those details that would be most relevant to you as financial advisers and paraplanners, asking questions such as ‘Is there more to MPS than performance and cost?’ and ‘What makes one MPS better than another?’ as well as the main question ‘What are the benefits of MPS compared to cash in times of high-interest rates?’.

Both Alex and Simon made sure to focus their answers on what you as financial advisers and paraplanners need to know, delving into that all-important detail. This made for one of our most in-depth – and popular – webinar chats to date with lots of practical advice on how you can navigate crucial MPS decisions and even wider industry challenges.

We’ve put together a brief overview of some of the main topics addressed in the webinar to give you a taste of what was discussed, but the full conversation is available for you to download via the link at the end of this article.

 

MPS choice paralysis

With so many MPS solutions available for IFAs now, it can be hard to determine what makes one better than another. You can have obvious differences in performance and cost, but usually, these two things are broadly similar across all available options, so what makes one better than the other?

This is the first question Chris poses to our panel and their answers act as useful insights as to what an IFA should be expecting from these solutions outside of the usual variables as well as how each provider actively makes sure they deliver on their promises.

Simon thinks that the outperformance of the benchmarks should be a prerequisite for an MPS and that actually what makes one solution stand out from the crowd is all to do with service.

 

He said: “When we talk to clients around MPS mostly they’re looking for somebody to provide that full range of portfolios across the risk-return spectrum.”

“On top of that, they expect their DFM partner to provide top-quality service to them and to their clients around what is going on within those portfolios. They clearly expect outperformance of the benchmark, but they are also looking for constant and relevant information to be able to let their clients know what is going on within those portfolios.”

Alex agreed with Simon’s insights but also sees value specifically in the consistency and reputation of the providers and this is something he thinks can and should be monitored by providers to make sure service levels remain high.

 

He added: “Performance and cost are really important when selecting an MPS. But the interesting next bit was process, so investment philosophy and consistency around that, as well as brand. So, we found that those two aspects were really important to clients.”

Cash is not always King

With inflation and interest rates at stubbornly high levels throughout much of last year, one of the most frequently asked questions from clients in 2023 was ‘Why shouldn’t I just move all my money to cash?’

With performance stagnant across most of the industry in recent years and funds on deposit offering highs of 6% last year, it is and was a valid question. Especially coming from those who aren’t experts at investing and don’t necessarily understand the justifications for staying in the markets and trying to outpace inflation, like some of your clients.

 

However, moving from investments to cash is frought with risk and rarely the answer and Alex explains some of the risks associated with doing so.

He said: “The most important point here is reinvestment risk. To achieve 5% or 6% on deposit will be asked to tie up your money for quite some time, you won’t be able to get instant access to that.”

“What will rates look like in 12 months? Well, that is pretty much anyone’s guess, but I would argue they will be lower. So, the probability of rolling into another 12-month fixed product means you may be fixing at a much lower rate. But what is more interesting is what happens in those 12 months. Do equities de rate giving much more attractive entry points?”

 

“Over long periods of time, the data shows that equities are the only asset that consistently outperforms inflation”.

Simon then goes on to provide us with some statistics that support the need to remain invested over the long term – which are hard to argue against.

He said: “Generally speaking advisers are investing for clients for 5 years or longer, and you can’t underestimate the importance of managing that inflation risk.”

“Schroder looked over 5-year periods at the US market going back to 1926 and 77% of the time over those 5-year periods, looking at US large-cap stock, equities outperformed inflation whereas cash only outperformed 55% of the time. If you looked at it over 20-year time horizons those same stocks outperformed 100% of the time as opposed to cash at 66% of the time. So, you need to be invested to manage that inflation risk and equities have historically been the best way to do that.”

We think that Chris summed it up perfectly at the end of this particular discussion point.

He said: “It’s the old adage, ‘time in’ markets rather than ‘timing’ markets and I think that’s a good message to adhere to.”

Is there trouble ahead?

Although there were many more topics covered in the remainder of the webinar, to round up the conversation Chris asked both Alex and Simon to comment on the problems they foresee over the next 5 years specifically for advisers and the services they provide.

Alex summarised this into three aspects saying “the first problem is regulation and the ongoing regulation changes, the second aspect is this ongoing theme around consolidation and the last one is slightly led towards regulation but more about SDR and sustainable investing and how investors are talking about it. This is going to become very topical as we see more regulation come out. Although these may be some of the biggest challenges, we could also turn it on its head and see these as potential opportunities.”

With his take on what challenges advisers will face, Simon said: “The four megatrends out there at the moment are demographics, AI, the move to a low carbon future and the reverse of globalisation. I think certainly 3 of them are going to impact the IFA world in some shape. I genuinely believe financial advice is a noble art and one in which there is excess demand and limited supply. There are 67 million people in the UK and roughly 35% of them are in socio-economic groups A and B. A large chunk of those who have assets will be moving into retirement in the not-too-distant future. There are about 5,000 advice businesses in the UK and 28,000 advisers so there is a massive demand and a limited supply. The challenge that IFA businesses have got is in terms of regulation but also meeting that demand for advice and the capacity within the system.”

Conclusions

These are just some snippets of the topics covered, there was much more in between, including Consumer Duty, the impact of current and upcoming political and economic events and how financial services can continue to lead the way in financial education. There were also some interesting audience questions that Chris picked up and threw out to the panellists for comment.

It was a wonderful session that covered MPS in great detail and also the wider financial services industry as a whole. The focus was firmly on IFAs and their firms, with discussions around the challenges and opportunities occurring now and in the future.

Many thanks and recognition must be given not only to Chris but also to Alex and Simon for sharing their valuable expert insights. As well as being hugely knowledgeable, were representing two of the leading and most well-known investment providers out there. And if you tuned in on the day, thanks to you too of course! We hope you found it useful.

We believe in second chances

If you missed the chance to watch the webinar live, you can access the recording here.

Meet the webinar participants

Alex Funk, CIO, Schroder Investment Solutions

Alex has many years of financial services experience which ranges from discretionary fund management, corporate finance, banking, capital raising, private equity to venture capital. Alex started managing a discretionary fund management business in South Africa and Mauritius, where he designed and managed model portfolios for financial advisers and wealth management firms across the world. Alex has extensive experience in managing multi-asset portfolios in the UK and is responsible for a range of portfolios and funds.

Alex holds a Bcom Honours in Financial Analysis (Cum Laude) from the University of Stellenbosch, South Africa and is a CFA Charterholder.

Simon Taylor, Head of Strategic Partnerships & Platforms, Investec Wealth & Investment

Simon joined Investec Wealth & Investments (UK) in 2021. He is responsible for maintaining and developing key strategic partnerships for Investec Wealth & Investment (UK) in the UK Financial Adviser marketplace.

His role involves expanding relationships with existing Investec Wealth & Investment (UK) clients and developing new partnerships with National adviser firms, Networks and Adviser Platforms. Simon has been involved in the UK Financial Services market for over thirty years, having worked at both Standard Life and Aberdeen Standard Life Investments, where he occupied similar senior business development roles. Up until 2021, Simon was Client Director at Aberdeen Standard Investments, with overall responsibility for their strategic investment clients in the Americas. Through this role he formed a close association with the Canada UK Chamber of Commerce where he was appointed a board director.

Webinar Chair: Chris Curtis, Community Development Manager, Asset Risk Consultants

Chris joined ARC’s Research Team in 2010 and was responsible for qualitative research and overall assessment of investment managers, as well as the Suggestus.com Research Platform. In 2020, he relocated to ARC’s London office to focus on developing ARC’s community of professional advisers and investment managers.

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