‘Multi-asset solutions are increasingly rising to the top of fund groups’ retail sales agendas’

Against an uncertain backdrop, there continues to be opportunity for those who want to deliver tangible value to advisers and their end-clients, writes Benjamin Reed-Hurwitz

Multi-asset solutions are increasingly rising to the top of fund groups’ retail sales agendas. This is true in terms of both selling into or the selling of such solutions.

Why? In a fiercely competitive market where firms are under pressure to grow their top and bottom lines, they know it is essential to have a good understanding of where the opportunities lie for their business.

ISS MI’s latest UK retail platform analysis, covering H2 2024, showed that multi-asset sales remained robust in an otherwise muted retail investment sales environment.

Model portfolios are perhaps the one segment of the UK retail wealth market that has seen positive net sales for the past three years. This has made them the apple of many solutions providers’ eyes.

But what exactly do 2024’s figures tell us about the opportunity available? Below, we break down the key questions raised by the current data, as well as potential paths to success.

Question one: Have we hit peak MPS?

While model portfolios have been the dominant solution in the IFA platform market since 2023 in terms of gross sales, in the last two years, there has been a notable levelling off in the share of gross sales they are taking. Does this mean the market is running out of road?

What is perhaps most striking about the growth of model portfolio solutions (MPS) is the extent to which it has been driven by a group of power users, with around a quarter of today’s IFAs driving 60% of gross sales. Some 70% of IFAs, however, use MPS.

Nearly half of IFAs using MPS leverage it for less than 50% of their investment fund sales.  With so many having yet to incorporate the solution across their broader practice, we don’t see the MPS revolution as being over. However, a question remains as to what will continue propelling forward adoption of a solution that is no longer the ‘new kid’ on the block.

Question two: What makes a successful solution?

In today’s cost-conscious environment, we are seeing a great deal of rebalancing towards portfolios that blend active and passive underlying investment strategies. This means MPS has provided opportunity for providers and managers of all stripes. The more blended approach we are seeing now, however, has differed from many portfolios’ more active approach of yesterday. Passive managers have been benefitting from this secular tailwind from a net sales perspective.

Around half of financial advisers are now implementing an MPS and multi-asset fund sales mix that blends active and passive funds to a meaningful degree. This is occurring through both the selection of balanced solutions and through the blending of actively and passively oriented products. Asset managers are increasingly evolving their distribution conversations away from active versus passive and more toward active AND passive.

Only adviser-managed portfolios composed of single strategy funds still show a marked preference for active, but even here, there is a shift. Despite adviser-managed solutions being in net outflows, passive funds still experienced positive flows in H1 and H2 2024.

That is not to say active is going to go away, but its role in modern portfolios is clearly changing. For now, at least, there remains plenty of opportunity for all strategy types to succeed. This includes low-cost active and enhanced index solutions that are aligned to many portfolio’s cost parameters.

Question three: What’s the importance of insourcing?

MPS opened up a new gateway for IFAs, amongst other new entrants, to develop their own solutions, which has led to a changing distribution landscape.

Insourcing – where the financial adviser has a corporate or regulatory relationship with the multi-asset provider or manager they are using – it is now prevalent, but it is unclear how far it will go.

In H2 2024, 39% of MPS gross sales came from insourced solutions, compared with just 16% for unitised multi-asset programs. Outsourcers are still winning the majority of the business and continue to be the driver of multi-asset overall in asset accumulation terms – a trend that will be influenced by the trajectory of consolidation.

Ultimately, tomorrow’s opportunity lies with the industry’s future advisers, clients and end-beneficiaries, but what really matters to asset managers is who is making portfolio decisions.

As it stands, multi-asset solution providers are the dominant fund selectors in the channel, and there are around 50 providers who currently have a big impact on where flows are ultimately going.

The million-dollar question is how much further these players’ presence will grow, as, even though the net sales picture is very positive, particularly for MPS, eventually that will taper if a greater share of new sales is not captured.

Against an uncertain backdrop, there continues to be opportunity for those who want to deliver tangible value to advisers and their end-clients.

But you have to know where to look for growth. Having a clear view of what’s happening in the market by portfolio constructor, region and consolidator has never been more vital.

Benjamin Reed-Hurwitz is EMEA research lead at ISS Market Intelligence