Model portfolio services are growing faster than the platform market, according to a report by NextWealth, while lower charges are boosting market leaders.
The report entitled ‘MPS Proposition Comparison Report’ found that assets in discretionary MPS grew 12% in the year to 30 September 2023, compared to a 9% growth rate for adviser platforms over the same period.
Heather Hopkins, managing director of NextWealth, said: “This increase suggests that while the overall market pie expanded by 9%, discretionary MPS has managed to secure a larger slice, outperforming the broader adviser platform market. It highlights that discretionary MPS remains a strategic growth driver within the wealth management sector.”
The research showed that the average price paid by end clients of MPS fell again this year to 0.60% from 0.67% in 2022 and 1% in 2021.
Hopkins said: “We’re seeing some big savings for clients. They now pay an average of 0.40% less on an asset-weighted basis for discretionary MPS than they did in 2021.”
She added: “DFMs that charge less are growing assets more rapidly, a similar trend to last year. Firms charging a combined MPS fee and OCF of less than 0.80% grew by an average of 8% in the year to Q3 2023. This compares to negative growth for those charging 0.80% to 1% and 1% growth for those with charges over 1%.”
The report found that the average OCF has fallen by 35 basis points in the past three years to 40 basis points.
According to NextWealth, some firms are using a fettered fund range or an allocation to in-house products to bring down fund charges.
“Surprisingly, we did not see a shift away from active funds this year. There has been a 1.9% increase in allocation to active,” said Hopkins.
While the market size has grown, the number of DFMs that advisers work with continues to fall and this trend has accelerated with Consumer Duty, NextWealth said. Advisers work with an average 1.7 DFMs, down from 2.2 last year.
The report also highlighted several challenges for DFMs, including the cost of risk ratings and portfolio mapping, price pressures and difficulty in delivering strong investment returns, which in turn have affected flows.
