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Just as there are many platforms, there are many model portfolios. NextWealth data show that assets in discretionary model portfolio services grew by 28 per cent in the year to March 2024, to a total market value of £123bn.
Four in nine financial advice professionals (44 per cent) use discretionary MPS, according to research from NextWealth, and a quarter (24 per cent) expected to increase their use in the next 12 months.
“Operating under an advisory licence is commendable but comes with certain administrative headaches,” says James Sullivan, head of Tyndall Partnerships, which provides customised investment propositions.
“Adopting a trusted discretionary partner alleviates such headaches, by ensuring fund switches and/or rebalances are done at the discretion of the DFM, at the proverbial click of a button. This also helps to align clients, ensuring that any two clients of the same profile have identical portfolios. ‘Treating customers fairly’ does not mean having to treat customers equally, but it does go some way to ensuring a consistent approach is applied.”
Clients are also not burdened by letters seeking permission for things like rebalancing, says Sullivan. “They can benefit from the DFM acting decisively at any given time, to help navigate some of the pitfalls of investing.”
But with an array of platforms, DFMs themselves face some operational headaches, says Scott Dakers, a business development director at Square Mile Investment Consulting and Research. “Added to this, the application of capital gains tax makes some sort of unitisation look more appealing.
“The net result of this is the need for open dialogue with platforms, which, to be fair, have never been averse to embracing change and new technologies. However, we are now perhaps at the stage where greater consideration needs to be given to how this all links together, and what straight-through processing looks like.
“Another brave new world beckons as technology may solve our trading, settlement and reporting challenges, but addressing the increased tax burden of using general investment accounts may be solved with old-school unitised funds and bond wrappers.”
With the differences that exist between platforms, even when they are underpinned by the same back-end technology partner, Chris Holdoway, an investment director at Albemarle Street Partners, says they as a DFM manage this by adapting its proposition on platforms to consider:
