Model portfolios continued to dominate sales in the UK financial adviser channel during the second half of 2024, a new report from ISS Market Intelligence has revealed.
The “Portfolio Construction Uncovered: Insights from the frontline of UK Retail Advice” report showed total multi-asset net sales remained strong in an otherwise muted retail investment sales environment, rising from £6.9 billion to £7.1 billion over the second half of the year.
The vast majority of growth stemmed from model portfolios, as multi-asset funds sold outside of MPS programmes broke even on flows.
Adviser managed solutions remained a weak spot, signalling a continuing shift by IFAs to formalised multi-asset programmes. Fund outflows through adviser managed solutions totalled £4.3 billion in the first half of the year and £3.3 billion in the second half.
Benjamin Reed-Hurwitz, EMEA research leader at ISS MI, said: “MPS remains at the fore of a broader shift to centralised investment propositions. What’s striking about the growth of MPS is how much it’s been driven by power users, with only about a quarter of today’s IFAs accounting for the majority of today’s MPS sales.
“With many MPS users yet to incorporate the solution across their broader practice, the question of whether we have hit peak MPS remains very much open.
“Within MPS, the third-party MPS managers won the lion’s share of the net flows. Even though there is a consistent in-sourcing movement, the outsourcers are still winning the majority of the business and continue to be the driver of MPS in asset accumulation terms.”
ISS MI said another notable trend was the growing dominance of blended portfolio solutions across all multi-asset solutions sales. Around half of all IFAs implement an MPS and multi-asset fund sales mix that blends active and passive funds to a meaningful degree. These firms accounted for 86% and 62% of all MPS and multi-asset fund sales respectively, the report found.
Reed-Hurwitz said: “In today’s cost-conscious environment, IFAs are opting to take a balanced approach to investing. Interestingly, this is occurring through both the selection of balanced solutions and through the blending of actively and passively oriented solutions.
“Asset managers are increasingly evolving their distribution conversations away from active versus passive and more to active and passive. There remains plenty of opportunity for all strategy types to succeed.”
Only adviser managed options showed a marked preference for active, but there is also a shift there, according to the report, with the growth in MPS and the shift of these fund selectors to blended solutions a contributing factor to the surge in passive investing in the UK.
“It is interesting to note that adviser managed portfolios are picking up on the trend. Even against a tide of money coming out of adviser managed solutions, passive funds still experienced positive flows. Rebalancing towards tomorrow’s blended portfolio is being observed across the sector,” Reed-Hurwitz commented.
ISS MI also analysed the best-selling third party fund managers through MPS and multi-asset by six-month model gross sales in the UK.
The five best-selling third-party managers within MPS providers for the six months ending 31 December 2024 were found to be BlackRock Investment Management, Vanguard Asset Management, Legal & General Investment Management, Fidelity International and Quilter Investors.
The best-selling third-party fund managers within platform sold multi-asset funds-of-funds programmes, by assets under management at December 2024, were BlackRock, Vanguard, HSBC, Invesco and Amundi.
Meanwhile, the best-selling third-party fund managers within the adviser managed space were Fidelity International, Vanguard Asset Management, BlackRock Investment Management, Dimensional Fund Advisors and Legal & General Investment Management.
Reed-Hurwitz added: ““Multi-asset solution providers have become the dominant fund selectors in the channel. The question is how much further their presence will grow. Even though the net sales picture is very positive, particularly for MPS, eventually that will taper if a greater share of new sales is not captured.”
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