As a part of our WealthTech Insight Series (WTIS) and in partnership with Financial Simplicity and IAWMC, last month, we published a new whitepaper informed by a recent discussion between UK Discretionary Fund Managers (DFMs) focused on the challenges of managing model portfolios on multiple platforms.

This whitepaper summarises a recent UK roundtable led by Financial Simplicity, which discussed the issues with running model portfolios over multiple platforms. Participants also talked about how these platforms need to work together with asset managers and IFAs to develop better processes and controls.

The conversation revolved around the evolution of model portfolios and the resulting complexity in managing various processes around them - particularly rebalancing. Overall, the feeling was that existing complexities were deep-rooted and had been problematic for some time. There is a disconnect between the systems in place to manage the model portfolios and what they do versus what they need to be capable of doing. This is an issue given that DFMs want to use model portfolios more but find that their needs are only partially met or not met at all.

The various parts in the value chain are not working, perhaps as they could or should do. Given that DFMs are increasingly looking to create model portfolios, there appears to be a disconnect between the value chain of how they interact with advisers and platforms and who would put their hands in the pocket in case of error.

The issues described by participants are generally acknowledged to be deep-rooted and have been happening for a long time. Paying for an improvement in service does not seem to sufficiently influence the platforms. Indeed, they are perceived to be dancing to their own tune, relatively unaffected by pressure to change because that pressure is disjointed and not uniform in terms of the demands or the weight of that pressure. The way forward seems to be in presenting a united front to the platforms and spelling out what exactly needs to change, how, and why.

In that context, the Australian experience is very relevant. There the advisory community worked hard to bring about model portfolios, largely driven around 2008, as a solution when they were unable to make changes quickly enough for clients. With a more united front from advisers and model providers (often the same groups) to the platforms who responded very much in the spirit of service. The platforms put in more sophisticated model capabilities - the dynamic was very different due to the crisis at the time and the united front of the advisers, many of them as model portfolio providers.

Ultimately, the lack of consistency regarding the DFMs and asset managers’ wants and what the platforms are offering might end up being resolved by the demands of the Consumer Duty Act or another industry initiative. Such regulations may force a new level of best practice and require advisers and asset managers to be able to show they are always acting in the best interests of the client, from the start of the process right through to rebalances and the eventual settlements. This is something that cannot realistically happen when dealings with the platforms are so haphazard, and thus, Consumer Duty or another regulatory driver could potentially effect change far more quickly than the asset management or IFA cohorts.

Access more insight by reading the full whitepaper here.

About the research

The WealthTech Insight Series
This research is part of The Wealth Mosaic’s WealthTech Insight Series (WTIS), an ongoing and developing research process mixing online surveys and interviews. It focuses exclusively on technology in the wealth management sector across the world. Rather than a one-off research process, the WTIS will seek to build an ongoing program of research among wealth managers of different types across the world on a broad range of technology and related topics, building up an aggregated knowledge base of both qualitative views and perspectives as well as quantitative data points.

Partners in research

Financial Simplicity
Financial Simplicity is a global specialist in portfolio control systems. We help wealth and investment managers achieve better experiences and business through the provision of a specialist digital platform. The portfolio co-pilot control systems in our platform allow our clients to deliver their investment propositions on a fully personalised and bespoke basis at scale. We believe this lies at the core of what these groups need to achieve in order to maintain their business and grow within acceptable risk parameters.

How do we do this? We combine an award-winning platform, machine-learned algorithmic IP, and the skills to help investment and wealth management firms understand the business improvement opportunities, and then teach them how to deploy these techniques within their business. Find out more at www.financialsimplicity.com

IAWMC
IAWMC is a niche management consulting firm providing services to wealth managers, private banks, family offices, asset managers, software vendors and service providers such as third-party administration firms. We differentiate ourselves from our peers and competitors by providing pragmatic and cost-effective consulting services to our clients by utilising our broad and deep knowledge of the financial services industry in which we operate. Find out more at www.iawmc.com