The platform MPS market is maturing faster than we previously predicted. Market volatility in 2022, regulatory changes and advice firm consolidation have accelerated trends that we’ve highlighted before. So competition among MPS providers is getting fiercer, according to our latest UK Wealth Management: Platform MPS report.
Several trends point to a new-found maturity of the MPS market:
- Adviser adoption of MPS is high. Nearly half use a third-party DFM for at least some of their clients. DFMs now run around a fifth of adviser platform assets. Most advisers no longer need convincing about the virtues of outsourcing. MPS providers are focusing more on growing their own book rather than on growing the market.
- Switching between DFMs has become more prevalent in the advice market. The variation in growth rates between DFMs widened markedly during 2022. In previous years, almost all providers had benefitted from advised assets moving to MPS, but now winners and losers are starting to emerge.
- Pricing has stabilised. MPS is a competitive market, but we don’t get the sense that it is especially commoditised. MPS providers are competing in areas lying beyond price and performance. Most advisers choose wealth managers as long-term partners rather than product providers. At this trend’s extreme, co-manufacturing of portfolio management solutions is on the rise.
MPS providers will need to differentiate to win in this market. But – being highly dependent on platforms to distribute their services – their options are narrow.
Scale will be a factor – we expect to see more M&A activity. Co-manufacturing will also look more attractive, with the added bonus that it embeds wealth managers deeper within advice firms. We also expect to see MPS providers addressing capital gains tax issues more assiduously. With the CGT annual exempt amount due to fall to £3,000 next tax year, MPS looks set to lose out to multi-asset funds and life assurance bonds for wealthier clients’ unwrapped assets.
MPS assets now exceed £100bn, overtaking bespoke portfolios managed by wealth managers for advisers. But with over 200 wealth managers running model portfolio services, there’s no room for complacency.
Platforum has published UK Wealth Management: Platform MPS analysing distribution of platform-based model portfolio services via third-party advisers. Please get in touch for more information.