We joined forces with NextWealth to produce a whitepaper: Keeping MPS clients in focus. This paper explores the current complex processes for building, editing, rebalancing, and reporting model portfolio services (MPS) on platforms, and discusses where ownership of the problems and solutions lie.
The demand for scalable, cost-effective investment solutions has led to the explosion of MPS, with a NextWealth report showing that assets in discretionary model or managed portfolio services have grown by 28% in the past year. As more and more firms adopt MPS, the industry faces an urgent need to streamline and optimise system processes.
DFM commenting:
Nobody knew that MPS was going to become what it's become. Everything has just pushed more IFA’s towards it. We mainly have processes which are not designed to cope with the world that we're now in. Data and operating on platform are among the biggest challenges and constraints to a lot of providers, especially for the smaller ones, I can't imagine how they can cope.
Clients entrust their wealth to financial advisers and DFMs with the expectation that their assets will be managed with the utmost care and professionalism. Advisers must therefore ask themselves: would my clients be truly happy if they knew their assets were being managed manually using spreadsheets?
The report also highlights the operational stress that manually rebalancing can cause for DFMs, with the process lasting between a couple of hours to 100 hours, and analysts being employed solely for ‘swivelling chair’ purposes, checking between screens, line by line, to make sure the rebalancing request has gone through – a risky and lengthy process.
The implementation of Consumer Duty rules has also contributed to the shift among advisers, which has led to an increased reliance on MPS to better focus on their client relationships and holistic financial planning. However, the rules make it abundantly clear that firms must put the consumer first which includes removing ‘sludge practices’ and any friction that would lead to operational issues dictating consumer outcomes.
To catch up with the growth of MPS and reduce these risks, firms must act now and take a critical look at themselves, acknowledging the areas where they fall short and commit to improvements. Criterion’s MPS Standards are a piece of the jigsaw that will help form the solution for automating MI reporting and editing and rebalancing models. Yes, the data integration will involve hard work and effort, but ultimately, will reward everyone up the chain with greater efficiency, reduced costs, and better consumer outcomes. The path to industry-wide solutions begins with a few forward-thinking firms.
