At NextWealth we expect to see a continued rise in centrally controlled investment choice. This central control typically manifests itself as a buy list, a core part of which is outsourced investment management including multi-asset funds, off the shelf MPS and discretionary managed MPS. We think discretionary managed MPS will be a net winner though the providers that gain assets could easily change.

Discretionary managed MPS saw strong growth post-RDR but our analysis suggests that growth has slowed over the past two years. We expect it to pick up pace for the following reasons:

• Regulatory scrutiny, and in particular SM&CR, is leading to increased centralisation to ensure outcomes are more robust and repeatable.
• Our research shows that 60% of client assets are for retirement clients. Many advisers say that MPS has not been an effective way to manage income drawdown for retirees. Platform developments, such as Standard Life’s new Individually Managed Account (IMA) service, will help to make MPS a better investment choice for retirees.

But at the same time, while we expect assets in discretionary managed MPS to grow, new entrants can disrupt with relative ease. There is low loyalty to existing providers and there is little asset friction, meaning that DFMs can be changed quite easily.

We estimate that between 12% and 15% of adviser platform assets sit in discretionary managed MPS. The share of assets in discretionary managed MPS varies greatly across platforms. For example, the service is less common for users of FundsNetwork and AJ Bell compared with Standard Life or Novia.

Our on-going research with financial advisers confirms these figures. While nearly half of advisers say they use discretionary managed MPS, they use it for only 14% of client assets.

The biggest trends in MPS are:

• Adapting the service to suit the needs of retired clients. Changes are being made by platforms and DFMs.
• Pricing pressure, which is manifesting itself in new product launches, reductions in OCF caps and a move to use segregated mandates.
• Moves to launch ESG portfolios, despite take up so far being low.
• Use of white labelled MPS, as a partnership between a DFM and financial advice business.

We have published this report because we think that there will be continued growth in assets in discretionary managed MPS. We will continue to chart growth in assets and the evolution of propositions.

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