Advised clients are missing out on higher investment returns due to the limitations of some platforms, a new report has found.
The NextWealth MPS Private Assets Report said while there is strong demand for a wider range of investment options, discretionary fund managers felt limited by the technical restrictions of platforms.
Heather Hopkins, managing director at NextWealth, said: “The average portfolio size of the largest discretionary MPS providers is £60,000 and most don’t go above £200,000.
“DFMs told us that to access higher net worth customers, they need to offer a more sophisticated proposition but this is not possible because platform tech has not evolved far enough nor consistently enough to make holding alternative investments practical.”
NextWealth said recent report shows that higher net worth customers are investing in alternatives and private equity which have consistently outperformed public markets. McKinsey’s 2021 Global Private Markets Review reported that private equity has outperformed public market benchmarks over the last five, 10 and 20 year periods.
Meanwhile, Capgemini’s World Wealth Report found that individuals with between £1 and £5 million, as well as ultra-high net worth individuals, with wealth in excess of $30 million, are more likely to invest in alternatives.
Hopkins warned that the slow pace of innovation among platforms was to the detriment of customer choice and investment outcomes.
Hopkins added: “Most DFMs want a consistent proposition across all platforms and so are forced to use widely available mutual funds. We’ve all witnessed the challenges of holding illiquid assets in open-ended funds with the recurring drama of property fund closures.
“DFMs want to hold illiquids, including private equity and other alternatives through investment trusts but some platforms can’t properly support holding closed ended funds and in particular fractional shares. The laggards are slowing innovation across the market.”