LONDON (01 October 2024) – Model portfolio sales in the UK financial adviser channel slowed during the first half of 2024 as the boom of the past 12 months ran out of steam, new data from ISS Market Intelligence (ISS MI) reveals.
Model portfolio sales grew just 6% over the course of H1 2024 both in aggregate and amongst individual firms using model portfolios, down from 13% in the same period a year earlier. Channel gross sales meanwhile grew by 14%.
Due to relatively modest sales growth, model portfolios’ share of channel sales reverted to 51%, which is where it was at the beginning of 2023.
The data comes from ISS MI’s Model Portfolio Sales Report, which draws on adviser platform data to unpick the market structures, trends and opportunities at a firm, model provider and fund level.
As part of this, ISS MI analysed the best-selling model providers and fund managers by six-month model gross sales. The five best-selling providers for the six months ended 30 June 2024 were found to be:
1. Quilter
2. Tatton
3. Parmenion
4. Timeline Portfolios
5. Financial Express
The best-selling fund managers for the same period, by gross sales, were:
1. Vanguard Asset Management
2. BlackRock Investment Management
3. Legal & General Investment Management
4. Quilter Investors
5. HSBC Global Asset Management
Despite a dip in gross sales, model portfolios captured a healthy £8 billion in net sales. Net sales outside of models continued to see significant redemptions.
Benjamin Reed-Hurwitz, EMEA Research leader at ISS MI and lead author of the MPS Report, commented: “Although gross sales lagged the channel in the first half, model portfolios are proving their staying power and continue to bring in net new money. While much of the growth seen in 2023 stemmed from firms moving money towards insourced MPS programmes, model growth was driven by the adoption of outsourced MPS programmes this year.”
H1 2024, in fact, saw a dramatic shift towards outsourced solutions, with the share of insourced model portfolio sales declining to 49% (down from 56% year-on year).
Reed-Hurwitz adds: “While for now insourcing remains prevalent, there is a question of how much more room it has to run. A question that will be tied to the trajectory of consolidation in the UK. The outsourcing trend on the other hand is something we expect to continue as we see more model providers converting new IFAs. Consumer Duty is also leading to many questions around choice, which is beneficial to outsourced model providers looking for new territory. Interestingly the outsourced component grew much more quickly than models as a whole – the growth here is much closer to what we saw for non-model sales.”
The report revealed that, as of H1 2024, the average financial adviser firm only uses two separate model providers. Some 14% of adviser firms are now using more than more than five providers, up from 11% year-on-year.
Reed-Hurwitz notes that nearly four in 10 (38%) firms using model portfolios rely on them for more than 75% of their fund sales.
He said: “This power user group might be generating the bulk of model business through a select group of providers, but that’s not to say there aren’t still opportunities. And the size of that opportunity comes down to where advisers are in the adoption curve.
“While it remains unclear whether everyone thinking about switching has done so already, there’ll no doubt be some advisers only part way through the journey and still deciding how far they want to take things.”
The ISS MI report also found that the average ongoing charge figure (OCF) for model portfolios used by financial advisers was 41 basis points at the end of H1.
It means that 43% of all share classes sold through models had an OCF below 20bps at the end of H1, highlighting how the growth of passives has changed the cost profile on MPS programmes.
Reed-Hurwitz says: “Passive investing continues to grow within the UK as questions around value and cost remain predominant. For MPS providers, this has meant further scrutiny of both portfolio management costs and underlying fund costs. As a consequence, the last 18 months has seen many MPS providers look to lower their costs on one or both fronts, which is a trend we expect to continue as competition within this space remains high.”
To learn more about ISS MI’s Model Portfolio Service Report, visit https://www.issmarketintelligence.com/solutions/marketsage/uk-model-portfolio-sales-report/
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