Model portfolio services used by third-party financial advisers remained the fastest growing area for wealth management assets last year. The big question is: how much more has MPS growth got to run?
MPS assets totalled a little over £80bn at the end of 2021, according to our recent wealth management research. That equates to around 8% of financial advice firms’ total investment assets.
A continued annual growth rate of 25% would hit around £200bn in four years’ time, which doesn’t sound unreasonable. If the adviser platform market continues on its current trajectory, that would equate to a fifth of platform assets by December 2026.
Our research of wealth managers and financial advisers suggests that this stellar growth will continue over coming years. Assets are shifting from multi-asset funds and bespoke wealth management portfolios. An awful lot of advised business out there also remains in bespoke advisory portfolios. We’d expect a sizable proportion of this to gradually migrate towards models.
But MPS does have its limitations, which may dampen its growth.
Some of the financial advisers’ favoured platforms – which they insist on using – restrict wealth managers’ freedom to select funds and are especially unhelpful to wealth managers who want to buy investment trusts, ETFs and even quite a lot of less mainstream mutual funds. This tends to make MPS a relatively vanilla investment solution. Private market and less liquid investments might also start to look more attractive over coming years, and CGT is likely to move up the agenda thanks to inflation and fiscal drag. MPS struggles somewhat with both.
Strong market growth is also disguising the surge in the number of MPS providers. Every man and his dog has launched their own MPS, from more ‘traditional’ wealth management giants like Brewin Dolphin through MPS specialists like Parmenion and even SME wealth managers with millions rather than billions of AUM. When growth rates eventually ease off, we’re likely to see consolidation.
Platforum has just published UK Wealth Management: Market Overview, analysing data and trends in the wealth management market. This complements Platforum research on UK financial advisers but looks specifically at traditional private clients wealth managers for whom discretionary investment management is their primary business as well as specialist MPS providers. Please get in touch for more information.