Asset growth in discretionary model or managed portfolio services (MPS) significantly slowed down in the year ending 30 September 2022.
A report by NextWealth found that MPS assets grew by just 3.5% in the period, compared with a 37.5% rise in the previous year.
This has largely been attributed to market conditions, considering that asset values have fallen and the implementation of any changes has been delayed as a result.
Heather Hopkins, managing director of NextWealth, said: “Financial advisers and clients are postponing decisions to implement portfolio changes due to volatility in the markets, which has hampered new asset growth for discretionary MPS.
“However, it’s not bad news across the board – while the top 10 DFMs lost an average of £65m in AuM, the remaining 21 gained an average of £141m ($172m, €164m), with impressive growth from some relative new entrants. This could be the start of a ‘David and Goliath’ trend.”
Price
But asset growth is not the only side of the DFM/MPS industry that was impacted in 2022.
The average price paid by clients has also decreased in the year to 30 September 2022 – to 0.67% from 1%.
NextWealth found a correlation between asset growth and price decrease, as DFMs with lower charges experienced a faster rise in assets than those with higher fees.
This is also part of the increasingly popular practice of financial advisers asking for pricing deals and often securing agreements with DFMs.
Hopkins said: “Pricing pressure is intensifying and DFMs are responding by pushing down the ongoing charges figure (OCF) and in some cases the MPS fee. DFMs with overall fees of less than 80 basis points grew 7% compared to only 2% growth for those with overall charges over 80 basis points.
“DFMs rarely offer deals on the MPS fee but there’s more flexibility on fund charges. DFMs using an in-house fund range will reduce cost by using a fettered fund range. Some will increase allocation to passive. All push hard to use their buying power to secure deals with fund managers. DFMs that are part of a business with a platform will often do deals taking into account the wider relationship.”
Looking ahead
Despite faltering growth for MPS/DFM assets, NextWealth believes the sector has a strong future going forward.
The firm said that growth will be impacted by three areas, all of which are accelerating as a direct result of the introduction of the Consumer Duty, since it is seen as a “huge opportunity”.
The three trends are:
- Assets moving from bespoke discretionary to MPS;
- Advisers moving away from adviser models and professionalising their businesses; and
- The rise of tailored models.
“From our interviews with DFMs for this report and our regular conversations with platform executives and financial advisers, we are in no doubt that assets in discretionary MPS will continue to climb,” Hopkins added.
