Assets in discretionary model portfolio services rose in 2020 but growth rates have slowed in 2021. Most firms, however, still saw solid gains with overall growth in line with the FTSE All Share, according to NextWealth’s latest MPS Proposition Comparison Report.
Heather Hopkins, NextWealth’s Managing Director, says: “Some DFMs have seen considerable growth driven in part by steady and continued shift of assets toward discretionary MPS, continued price pressure and the launch of successful ‘responsible’ portfolios. Looking forward we expect continued fee compression and new ESG compliant solutions to continue to drive growth in MPS assets.”
Overall, 27 DFMs are profiled in the report. The three largest are Parmenion IM, HSBC Global Asset Management and Tatton IM, all with over GBP8,000 million in assets. They have significantly more assets than the rest: the next DFM in terms of assets is FE Investments with over GBP3,000 million.
In the previous 2019 and 2020 reports, 19 DFMs were profiled, allowing for comparisons to be made.
Overall DFMs assets in MPS grew 11 per cent in Q4 2020 but several firms had standout relative growth including Betafolio, Charles Stanley, HSBC GAM, Sarasin and 7IM. HSBC GAM had the largest growth. Smaller providers like Sarasin doubled their portfolio size in Q4.
Relative growth was not as pronounced in Q1 with overall MPS assets increasing by 5 per cent. Most DFMs had relative growth of 10 per cent or less except for Betafolio who continued to onboard new assets nearly doubling in size. From a net asset perspective, the biggest increases belong to Tatton, FE and Brewin Dolphin.
Costs continue to vary widely, with DFMs in this study charging an MPS fee of between 6 bps to 40 bps. The majority of firms sit in the 20-30 bps range. The on-going charges figure (OCF) is even more varied.
Hopkins comments: “There is a wide gulf between the OCF of these portfolios: HSBC is at the lower end with an average OCF of 8 bps while Facet is on top at 117 bps. The main difference between the two is that HSBC is 100 per cent passive while Facet is 100 per cent active, although others with a high allocation of active are charging less than 100 bps. New entrants Vanguard and LGIM are further disrupting on price, intensifying competition. DFMs with the fastest growth in assets are also among the most keenly priced, suggesting one impacts the other.”
MPS allocation shifted slightly (1.7 per cent) towards active over the last six months.
Heather Hopkins comments: “Driving the shift towards active were Schroders and 7IM who both made increases of over 10 per cent. Brooks Macdonald bucked the trend by making a significant shift towards passive.”
The data for the report is collected through surveys of financial advisers and employees of financial advice businesses, interviews with senior executives of DFM firms and data provided by DFMs. It can be accessed via the NextWealth website.