Outsourced investments have soared in popularity over the past few years, as adviser appetite to run their own portfolios has waned, says Quilter.
At the end of 2020, outsourced investments in DFM models and managed portfolio services stood at 16.7% of all platform assets. That figure now stands at 41.9%, with the total amount of assets in these soaring 331% over the same period.
At the same time, the proportion of assets still managed on an advisory basis on the Quilter platform has fallen sharply from 28.1% in 2020 to 15.8% today. The total assets run on an advisory basis has stagnated compared to outsourced assets, with just £13.4 billion today compared to £13.9 billion in 2020, the wealth manager said.
Graham Folley, head of business development and discretionary sales at Quilter, said: “MPS growth in the past decade has been nothing short of phenomenal.”
Folley said that in 2014, Quilter had three discretionary managers with model portfolios on the platform with assets around £350 million. That number has grown to 149, representing over 3,000 portfolios and close to £18 billion in assets under management.
Folley continued: “The trend is clear and adviser appetite to administer advisory model portfolios has markedly diminished. Clients and advisers clearly like the visibility of both the activity and the investments that an MPS provides, and coupled with the downward pressure on fees, they are fast becoming the preferred way to implement the investment means of a financial plan.”
However, Folley warned that the growth of MPS has brought about “new and possibly unappreciated risks.”
He said: “MPS providers are making greater use of passives to help drive costs lower, but this brings about a latent risk some advisers and their clients are not necessarily aware of. With the US making up over 70% of the MSCI World index, and the Magnificent Seven around a quarter, some MPS portfolios are concentrated in a small handful of names and may lead to outcomes that cause some clients discomfort.
“Given how this would expose clients in a market downturn, as evidenced during 2022’s fixed income struggles, due diligence of the investments, as well as the operations, of an MPS is more vital than ever.”
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