‘Many clients may wish to transition from MPS to bespoke as their financial journeys move into unfamiliar territory’

Edward Kennedy explains why he firmly believes bespoke services and Managed Portfolio Solutions (MPS) can – and should – co-exist

Demand for bespoke investment services is set to rise. Individuals are increasingly turning to their financial advisers for tailored offerings, not least with the potential challenges of later life in mind.

This shift is perceived in some circles as evidence that MPS solutions are innately inadequate. “Race to the bottom” pricing is often cited in support of such a view.

Yet this somewhat negative interpretation doesn’t withstand a great deal of scrutiny. As their sheer popularity illustrates, MPS solutions can in many ways be regarded as a spectacular success.

It would perhaps be fairer to say these products have their limits. It might be even more reasonable to say it’s bespoke services, not their MPS counterparts, that have tended to disappoint in the past.

It’s well worth analysing these claims in more detail. In my opinion, they point towards a future in which the strengths of bespoke services and MPS solutions alike are better understood and utilised.

Why does this matter? It matters because the likely outcome would be an investment landscape in which these two approaches are finally – and rightly – seen as complementary rather than as competitors.

The realistic limits of MPS

MPS solutions involve the outsourced construction and management of diversified, risk-rated portfolios. They continue to play a major role in helping the financial journeys of millions of individuals.

In my experience, they’re eminently capable of meeting the needs of a large number of investors. Yet I’ve also witnessed a handful of unwelcome developments in this space in recent years.

Commoditisation is perhaps the most significant. Many providers have fallen into the trap of treating MPS solutions as mere products, forgetting that what really counts in most cases is service.

This may explain why the Financial Conduct Authority (FCA) is set to look at the MPS sphere through the lens of Consumer Duty. The regulator wants investors to have confidence that they’re “receiving good outcomes from MPS”.

It’s highly likely that what the FCA has uppermost in mind is the suitability of MPS solutions for individuals on the brink of retirement. For many of these clients, particularly in volatile times, a portfolio firmly rooted in a specific risk rating could be insufficiently flexible to meet their evolving needs.

Think of it this way: as an adviser, would you expect clients whom you first took on 30 years ago to have precisely the same goals now? Of course not. Back then they were probably concerned almost exclusively with accumulation. Their requirements today could be far more complex and personalised.

Returning service to the forefront

This is where bespoke services enter the picture. But what does it take for such offerings to prove genuinely effective?

The clue is in the name. Arguably even more so than with MPS solutions, the emphasis here must be on service – in which respect, historically, many ostensibly tailored products have fallen short of the mark.

It may be tempting to infer that the key to a provider delivering an outstanding level of service in this arena lies in somehow wrestling client relationships away from advisers. Nothing could be further from the truth.

In fact, the answer is to be found in partnership, collaboration and engagement. A fundamental aim should be to work closely with advisers and equip them with the tools they need to deliver optimum solutions for their clients.

This might involve access to a wider range of assets. It should also entail a capacity to take advantage of additional opportunities for outperformance and to adjust a portfolio to ensure it remains fully aligned with an individual’s objectives and values over time.

In many instances, crucially, there will also be a sharper focus on the longer term. This might include considerations around generational wealth preservation and transfer.

Co-existence and peace of mind

Marlborough’s Personal Portfolio service was launched earlier this year. It demonstrates our own conviction that bespoke services and MPS solutions can – and should – co-exist.

Our conversations with advisers and their clients consistently underline that this is the desired direction of travel. There’s clearly a growing appetite for both offerings.

Going forward, my team and I expect more investors to recognise the respective attractions of each approach. This is why we use the same multi-asset framework to underpin both.

Many clients may wish to transition from MPS to bespoke as their financial journeys move into unfamiliar territory. They might switch, for example, as they head into their last years in employment or when they reach the decumulation phase.

Ultimately, whatever stage they might be at, they want to feel secure. This is especially important in an era when uncertainty and market fluctuations are repeatedly highlighting the imperatives of capital protection and peace of mind.

Many products are purportedly geared towards such ideals. But in the final reckoning, for clients and advisers alike, it’s service that usually turns out to be the real difference-maker.

Edward Kennedy is head of Marlborough’s Personal Portfolio service