An MPS can also offer advisers and their clients substantial optionality when it comes to investment suitability. For example, WealthSelect, Quilter’s MPS, consists of 56 different portfolios managed across eight different risk levels that each target a specific range of volatility. Then, depending on the responsible investment preferences of the customer, WealthSelect also provides a choice of active, blend, or passive investment management.
The optionality of an MPS is a significant advantage for advisers. This is particularly important in a post-Consumer Duty world where there is an increased focus on advisers being able to demonstrate that the products and services they provide to their clients are tangibly linked to their needs, goals, and preferences.
An MPS also allows advisers to outsource the ongoing management of their clients’ portfolios. An MPS will be rebalanced on a regular basis to keep it in line with its investment objectives but can also be rebalanced at any time to adapt to changing market conditions.
Fund of funds and the three Ts
The more traditional approach to multi-manager investing is a FoF. This is an investment strategy where a single fund invests in a diversified selection of other funds. A FoF also offers advantages to suitable clients that can be summarised by the three Ts: toolkit, trades, and tax.
A FoF can often access a wider investment toolkit than an MPS. They can invest in a broader universe including assets such as exchange-traded funds, investment trusts, and derivatives, which are not typically available in an MPS. This can help maximise returns and manage risk.
The ability of a FoF to make changes and execute trades at a moment’s notice is another benefit. This allows them to quickly take advantage of market events and opportunities as they are not reliant on platform technology
Finally, a FoF does not create a capital gains tax event for an investor when rebalancing, whereas rebalancing an MPS can trigger an event if it’s held unwrapped.
A suitable approach
A FoF is ideal for investors seeking a diversified investment approach with potential tax advantages and efficient trading capabilities. It can also be suitable for those who prefer a hands-off investment strategy with professional management of a broad range of assets.
Meanwhile, an MPS is often suitable for investors who value transparency and want to see the specific funds in which they are invested. It can offer flexibility and a wide range of options, making it a good choice for those who require a more personalised investment approach.
Both structures can be used effectively in financial planning and are popular options with advisers - 79% use both as part of their investment proposition*. Understanding their differences and benefits can help advisers make informed recommendations that align with their clients' financial objectives.
*Source: NextWealth Multi-Asset Distribution Dynamics report, June 2024.
