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Platform frustration for advisers and DFMS with UHNW clients


Advised clients are missing out on superior returns due to technical restrictions with many platforms, a new report by NextWealth has stated.

The NextWealth MPS Private Assets Report reveals strong appetite for including a wider range of investment options into MPS from DFMs with the main limiting factor being managing them via platforms.

Heather Hopkins, managing director at NextWealth comments: “The average portfolio size of the largest discretionary MPS providers is GBP60,000 and most don’t go above GBP200,000. DFMs told us that to access higher net worth customers, they need to offer a more sophisticated proposition but this is not possible because platform tech has not evolved far enough, nor consistently enough, to make holding alternative investments practical.”

Recent reports show that higher net worth customers are investing in alternatives and private equity and that these have consistently outperformed public markets, states NextWealth. They continue that advised customers are potentially missing out on higher investment returns because of the limitations of some platforms.

McKinsey’s 2021 Global Private Markets Review reports that private equity has outperformed public market benchmarks over the last five-, 10-, and 20-year periods. The report states that on a pooled basis, private equity has produced a 14.3 per cent annualized return over the trailing 10-year period, beating the S&P 500 return of 13.8 per cent by 50 basis points.

Capgemini’s World Wealth report found that Millionaires Next Door and ultra-high net worth (UHNW) individuals are more likely to invest in alternatives. UHNW individuals are defined as having wealth of USD30 million. Millionaires Next Door have between GBP1 million and GBP5 million. UHNWI direct 17.7 per cent of their portfolios to alternative investments and Millionaires Next Door, 11.8 per cent.

Heather Hopkins comments: “The industry is moving at the pace of the slowest platform, to the detriment to customer choice and investment outcomes. Most DFMs want a consistent proposition across all platforms and so are forced to use widely available mutual funds. We’ve all witnessed the challenges of holding illiquid assets in open ended funds with the recurring drama of property fund closures. DFMs want to hold illiquids, including private equity and other alternatives, through investment trusts but some platforms can’t properly support holding closed ended funds and in particular fractional shares. The laggards are slowing innovation across the market.”

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