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

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

The roundtable featured some 25 participants. On average, participants within the model portfolio investment team had between four to five people. There was an average of five people to support with compliance, and the number of original model portfolios under management averaged around 90.

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.

Interested in finding out more? Read and download the whitepaper here

The whitepaper at a glance
Below you can read the key findings from the roundtable and whitepaper.

Process Management:

• There is an obvious need for processes to be clearly set out and, where possible, automated in order to create efficiency for asset managers.
• It would be beneficial to implement more sophisticated user permissions so as to allow for different levels of access and functionality.
• A better authorisation process, either inside or outside the platforms, with associated permissions would reduce the risk of human error.
• A common set of standards or a best practice guide would be useful for all parties.

Impetus For Platforms To Change:

• There is the perception that the platforms have no impetus to resolve issues or improve the process for loading and managing model portfolios.
• There is the feeling that one DFM/asset manager alone does not have enough weight to force change or effect standardisation.
• Individual DFM/asset managers are too disjointed to know what exactly should be standardised and how.

Effecting Change:

• Given the technical nature of system integrations, the technical leaders at the platforms need to be brought into the discussion.
• This absence is a longstanding issue, and the only practical workaround for some DFM/asset managers is to start avoiding certain platforms.
• Platform consolidation, driven by either IFAs or asset managers carefully choosing who they partner with, could be a valuable way to effect pressure to change.
• Influencing and educating IFAs on the best platforms for the issues that actually impact them could be a positive influencer of change.

The Human Factor:

• Avoiding key-person dependency in MPS operations and having policies, systems and procedures in place to deal with things like long-term sick leave was seen as sensible, if not critical.
• Communication within some processes is problematic, with multiple emails going out, some of which might bounce or not receive a reply.
• Access problems to platforms and restrictions in uploading model portfolios also feature on the list of irritations,
• Together with inaccurate information as regards the availability of a fund on a platform.

Systems And Controls:

• A controls-based approach to contain risks was deemed appropriate.
• DFM/asset managers would find it hard to impose their own (and varied) risk processes on platforms to follow, so this needs to be implemented outside the platforms.
• The thrust was that being reliant on the platform’s systems and controls was not ideal or sufficient.
• Ideally, communication with platforms needs to be a ‘complete loop’.

Interaction With Platforms:

• User access, permissions and controls are an issue.
• When uploading model portfolios, there is often no joined-up recording of what the issue is, steps already taken to try and resolve it, and what should happen next.
• There is rarely an accurate timeframe for fixing related issues. This put pressure on processes and people alike.

Regulatory Considerations:

• Consumer Duty will make avoiding negative client outcomes mandatory and, thus, a crucial consideration.
• The platforms as a group were described as naturally very reticent about taking responsibility or admitting liability if things went wrong.

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 focused 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 learnt 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