Typically, paraplanners seeking out an MPS strategy will encounter the fettered and the unfettered approaches. But there is a third way, says Peter Stewart, Associate Director, Intermediary Sales.
When selecting a managed portfolio service (MPS), financial planners and paraplanners typically encounter two approaches: fettered and unfettered. Indeed, this distinction can serve as a selection filter on due diligence tools, such as Defaqto Engage.
A fettered MPS relies exclusively on in-house funds. While this can offer a degree of consistency and potentially allow for lower management costs, it may also limit diversification and restrict access to best-in-class opportunities across asset classes. In contrast, a typical unfettered MPS allows managers to select investments from the entire market, perhaps blending third-party funds alongside proprietary offerings. This broader access can enhance flexibility but may also introduce higher fees and additional layers of due diligence.
A different approach
There is a third way, illustrated by Waverton’s direct investment approach, which operates outside of the traditional fettered vs. unfettered classification by focusing on owning individual securities rather than third-party funds.
While occasionally – and, in our opinion, incorrectly – labelled as a fettered MPS, the four building block funds that comprise Waverton’s MPS were designed and incepted specifically for the models and are merely used to wrap the main asset classes for the purposes of effective and efficient distribution via adviser platforms.
The funds were not an existing range of strategies, repackaged into an MPS as an afterthought. Rather, they operate in harmony with each other ensuring effective risk management and a considered look-through holding of hedging strategies and cash.
While a portfolio of funds has the potential to create a fog of styles, holdings and outlooks, we believe our building block structure plays to our strengths in direct and global security selection, eliminating the ‘middleman’ of third-party fund managers. It enables greater transparency on what we own (and choose not to own) while also improving cost efficiency and delivering greater value to underlying investors. The asset allocation – determining the proportion of each of the four funds in each risk mandate – is centrally managed by the Waverton Asset Allocation Committee.
While predominantly directly invested, we can and do use third-party funds where we believe they add value – for example, the Montlake DUNN WMA Institutional UCITS Fund represents the largest single exposure held within the Absolute Return Fund. A ‘traditional’ fettered MPS would not incorporate any third-party strategies.
By directly managing bonds, equities and alternatives rather than relying on external fund managers, Waverton reduces unnecessary fees and retains full control over asset selection. This precision ensures that portfolios are actively managed in response to market conditions while maintaining a clear focus on long-term returns.
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