An increasing number of discretionary fund managers are using exchange-traded funds as downward pressures on fees continue to push the use of passive instruments.
The percentage of DFMs using ETFs has risen from 46 per cent in the first quarter last year to 58 per cent this year, according to Nextwealth’s latest MPS proposition comparison report.
Asset allocation has shifted with passive exposure up 4.3 per cent in model portfolios, mainly due to asset growth for the DFMs that use passive instruments.
Meanwhile, fees for model portfolios continued their downward trend, with the ongoing charges figure for an MPS dropping 0.33 per cent, and the average MPS fee dropping 0.03 per cent in the period.
This is in comparison to the average total cost of ownership for advised clients which is 1.64 per cent, and covers the cost of platforms, funds, portfolio management and advice.
Nextwealth thinks this figure will fall to 1.2 per cent in the next 3-5 years.
Heather Hopkins, managing director of Nextwealth, said the incoming consumer duty will force providers to get their houses in order.
“DFMs offering a higher cost offering will need to fight harder to justify their higher fees with strong performance,” she said.
A survey from RSMR in 2021 showed that for 81 per cent of advisers, the key feature of a good provider of MPS was charges.
Top ten DFMs on platform Q1 2023
- Tatton Investment Management
- Quilter (WealthSelect)
- Parmenion Capital Partners LLP
- LGT Wealth Management UK LLP
- RBC Brewin Dolphin
- Schroder Investment Solutions
- Financial Express Investments Ltd
- Brooks Macdonald Asset Management
- Square Mile Research
- Abrdn
The top ten DFMs have remained the same since 2020, with over 200 DFMs now offering discretionary MPS on platforms.
Total assets in discretionary MPS grew 11 per cent between the first quarter in 2022 and the same period this year, with Timeline Portfolios, Tatton and Quilter Wealth Select adding almost £2bn in the first quarter of this year alone.
The Nextwealth survey found that 36 per cent of DFMs have enhanced their due diligence process conducted on advice firms as a result of the incoming consumer duty, with 93 per cent completing a fair value assessments in the last 12 months.
sally.hickey@ft.com
