Each of the methodologies identified within the model are defined below:
Bespoke
These are very similar to the traditional offerings for high net worth clients with sophisticated needs. Advisers canview discretionary portfolios, which are investment accounts hosted by the discretionary firm. Usually there is one lead investment manager, directly involved with portfolio construction and maintenance. Investment solutions are built individually to meet specific requirements.
These clients can also access these discretionary investment services through their self-invested pension wrappers and now some 47 offshore bond products as well.
Managed portfolio services (MPS)
For some clients with less bespoke requirements, a ‘house’ approach can be used. This may then be tailored to take into account individual circumstances, for example a legacy CGT liability.
There has been an increase in the number of these services being provided. - and, interestingly, we are seeing the market polarised between direct propositions offered by the discretionary managers and those MPS solutions which are offered via platforms.
Direct managed portfolio services – direct
An increasing number of discretionary managers have constructed a range of ready-made portfolios that have different risk and reward profiles. They can be selected individually or combined based on the needs and risk tolerances of the client. These portfolios tend to be populated by collectives, but some direct fixed interest securities are held for cost reasons.
The discretionary managers have concluded that, to meet the needs of the adviser community, they have had to lower their investment minimums (as bespoke portfolios minimums can often start at £500,000) to provide access to a larger numbers of clients.
As a ‘one size fits many’ solution, the adviser matches the client to the portfolio. This methodology does remove some of the bespoke aspect, but many clients have no need for it and, in fact, their needs are adequately served by an MPS. Some personal aspects of the bespoke service are retained.
Managed portfolio services via a platform
As a large number of advisers place client assets on a platform, it is no surprise that an increasing number of discretionary managers are making their MPS propositions available through this channel.
The portfolios tend to be identical to those available directly from the discretionary manager. However, this solution provide sa view to the client and their adviser of the discretionary portfolio in context of all their assets within all wrappers sitting on the platform – a more holistic and joined up approach.
It also means that the majority of administration is undertaken by the platform rather than the discretionary manager. The choice of platform therefore becomes a significant influencing factor.
The platform challenge
The platform architecture has to have the ability to host the services of the discretionary m; with some unwilling to offer direct investment securities. Those that limit themselves to offering only collectives are currently in discussions about the various share/unit classes and how it affects not only their business but also that of the fund provider. What of fund rebate policies and renewal commissions for existing portfolios?
