MPS or bespoke investments? Should it be one or the other? An either or philosophy seems like the wrong thinking, suggests Edward Kennedy, Head of Marlborough’s Personal Portfolio service.
I’m a proud member of the Kennedys – not the ill-fated American political dynasty but the Scottish clan whose lineage can be traced back to the 12th century. Our motto is “Avise la fin”, which translates as “Consider the end”.
I’m sure you hardly need me to point out that “Consider the end” is an excellent maxim for anyone working in our industry. It encapsulates the sort of thinking that should be at the heart of every investment journey.
In this context, of course, “the end” is a synonym for a client’s long-term goals. In planning a secure financial future, every individual should have a firm idea of what they want to achieve and how they hope to make it possible.
Managed portfolio service (MPS) solutions have emerged as the products of choice for many investors who embrace this philosophy. They’re increasingly seen not just as the end but as the beginning and pretty much all junctures in between.
The spectacular growth of MPS assets under management in recent years serves as testament to their appeal. In my experience, they’re able to meet the requirements of a large number of clients.
Yet it’s hard to deny that this arena has become heavily commoditised. Many providers appear keen to relentlessly expand their MPS ranges, often at the expense of any sort of meaningful focus on service.
Perhaps this is why the Financial Conduct Authority has taken a conspicuous interest in MPS provision, most notably with Consumer Duty in mind. The regulator has spoken of its determination to ensure investors are “receiving good outcomes from MPS”.
It’s likely that the inherent limits of risk-rated portfolios are uppermost in the FCA’s thoughts. After all, there are undoubtedly instances in which more flexibility could better help satisfy a client’s objectives.
Imagine, for example, that an investor is on the cusp of retirement. Isn’t it likely that access to a wider array or assets and a capacity to seize additional opportunities for outperformance could be of use in such a case?
This is where bespoke services enter the reckoning. As more clients develop complex financial needs, especially in an era when volatility is acknowledged as a “new normal”, demand for tailored products is set to rise.
Co-existence and close collaboration
Two common misconceptions continue to cloud the arena of bespoke services. The first, which has endured for as long as I can remember, is that such offerings should be regarded as in direct competition with MPS solutions.
In reality, it’s inherently unhealthy to think of either as superior to the other. It’s much more productive to see the two as complementary and recognise each has its own distinct strengths and uses.
By way of illustration, let’s say a client has benefited from an MPS solution for many years but has moved beyond the early stages of wealth accumulation. It could be eminently sensible to switch to a bespoke service against such a backdrop.
In other words, it doesn’t have to be a question of one or the other. It’s perfectly possible for an investor to make use of both over the course of a life-long financial journey.
The second widespread misunderstanding is that the only way for a third party to deliver a genuinely personalised service is to somehow “muscle in” on an established relationship. If a provider wants to truly reflects a client’s wishes, the argument goes, it must take the lead in terms of engagement and dialogue.
This is nonsense. The optimum approach is to work in partnership, giving planners all the tools necessary to fulfil their clients’ needs.
Launched earlier this year, Marlborough’s Personal Portfolio service underlines where we stand on the above points. We firmly believe that MPS solutions and bespoke services can co-exist and that providers and planners should collaborate in the best interests of the people who rely on their combined expertise.
In our view, it’s vital to remember at all times that what clients really want is peace of mind. In keeping with the credo of “Avise la fin”, they want their financial journeys to be characterised by prudence and foresight.
To be honest, I’m not entirely convinced that every member of the Kennedy clan throughout history has strictly adhered to this philosophy. Among others, the Second and Third Earls of Cassilis probably could have guessed things might not turn out too well for them. You can easily check out some of our misadventures online if you’re in the mood for a salutary tale or two.
When it comes to investors’ long-term prospects, though, there’s no excuse for not thinking ahead. MPS solutions and bespoke services can both help produce happy endings, not least if we take the time to understand which is better suited to a client’s unique circumstances.