Cost is the key determinant for choosing between Fund of Funds (FoFs) and Managed Portfolio Services (MPS) despite the recognition that FoFs can provide access to assets that cannot be achieved more cheaply elsewhere, new research from Downing Fund Managers shows.
The independent research was conducted for Downing Fund Managers among 46 general practitioner, specialist and hybrid advisers during July 2024.
It found 30% rate the higher fees of FoFs cost as the main factor when deciding between recommending them or MPS ahead of the client’s risk profile, even though FoFs offer more diversification and can be more suitable for clients with low-risk profiles.
Around 26% of advisers questioned chose clients’ risk profiles as the key determinant when choosing between FoFs and MPS, with 24% selecting performance and 22% who chose a client’s preference for transparency and control.
Tax implications were ranked fifth and chosen by 15% with the same number selecting fund and platform availability as a key factor ahead of 7% who chose convenience. Just 4% select based on a fund or platform’s reputation.
Nearly two out of five (37%) said easy diversification is the main reason for selecting FoFs and 26% point to their simplicity and convenience and one in six (16%) their tax management advantages, specifically on Capital Gans Tax due to their clear structures and lack of rebalancing.
The flexibility and control offered by FoFs was chosen by 16% as a reason to prefer them to MPS while 11% said they recommend FoFs as they have more experience with them. Around 7% say their firm has clear policies on what to recommend which favour FoFs.
Simon Evan Cook, manager of the Downing Fox range of FoFs said: “These results backed my belief that costs were a key factor in advisers switching away from funds of funds to MPS. It’s why I knew that if we didn’t find innovative ways to reduce the costs of our funds of funds, there would be no point in launching them.”
Independent research conducted for Downing Fund Managers among 46 general practitioner, specialist and hybrid advisers during July 2024
