What you need to consider before using an MPS

As more firms explore whether a Model Portfolio Service can better support their clients, Mel Holman—Chartered Financial Planner, compliance specialist and founder of CATS—shares her insight on what advisers must consider before bringing an MPS into their centralised investment strategy. Drawing on decades of hands-on experience, Mel cuts through the complexity to highlight the practical, client-centric factors that truly matter.

We are finding that more and more firms are at least considering having a Model Portfolio Service (MPS) provider within their investment strategy. The idea being that by ‘outsourcing’ to an expert to manage a client’s portfolio, will mean that the adviser can concentrate on the financial planning with the client. Other benefits to the client could be:-

• Less paperwork and hassle from the adviser where they may recommend a fund switch
• Bed and ISA can be undertaken automatically
• They benefit from a team whose 9-5 job is to solely look at funds and strategy
• Rebalancing is the responsibility of the investment manager, meaning less paperwork for the client to complete

Obviously, for these benefits the client pays an additional fee for the discretionary service (and it is a service and not a product).

So what do you need to be thinking about if you are considering introducing this as either the main investment strategy for your clients or an option?

You need to re-visit who is the firm’s target client. What do they generally require from their portfolios? What are their hassle points? Would they be likely to pay an extra fee for a third party to be introduced to the client journey? Would they see the value in using an MPS? If the firm moved clients across to using an MPS is the firm clear what their role will be with the client?

Are you comfortable justifying your existing ongoing fee level if the client now feels that the investment management is being done by someone else – lots of clients still think the ongoing fees are for investment management.  Will this mean a change in service? The firm will need to consider whether disclosure documents would need to be ultimately updated to reflect a change in service. Note: the focus of the research it is not about being firm centric i.e. how beneficial it will be for the firm to have in place a discretionary investment strategy, but must be client centric – by using a discretionary service how will it better help the client?

Conduct whole of market research. You need to find a service provider who has the same investment philosophy as you. Can they provide sustainable portfolios so that you can accommodate those clients who have an objective to invest sustainably? Is the strategy adapted for decumulation clients? If not, how does the service impact decumulation clients? Would the firm need to provide additional services or change their approach to ensure clients in decumulation receive an ongoing positive client outcome?

Once research has been undertaken, due diligence then takes place meaning a deeper dive into the identified firms that you are considering working with. What interaction do they have with the firm and the client? What support do they offer firm/ client? How do they work with vulnerable clients? There are some good tools available in the market that can help with this i.e. https://www.ddhub.co.uk/

Remember as part of this fact finding exercise, you should be gathering and reviewing Target Market Statements to ensure that the service is suitable for your target client and so you can be comfortable that they do provide value to clients.

Of course, portfolio performance needs to be considered as part of the due diligence process.

Somewhere within these documents the firm should document what type of client the MPS would not be suitable for.

• Training will need to be provided to all the team. They need to understand how the MPS works and who it is suitable for.
• Consider how you will position this new strategy to clients. Will this be at each annual review or as a project exercise looking to move as many clients across as possible? How will you check their understanding of the new approach, especially if the contractual relationship with the MPS service provider is on an ‘agent as client’ basis?

Of course, the Consumer Duty requirements underpin this whole review so you need to be putting yourself into the client’s shoes at all times, sense checking that you are asking the right questions of the service provider for example. Dimensional Fund Advisors held a webinar Consumer Duty: What It Means for Managed Portfolio Services which goes into more detail as to the what to consider from a Consumer Duty point of view when using an MPS which you may find useful.

If you are going through this exercise, it is evident that the whole exercise will take time and there maybe a knock on effect on a number of other. However, if you believe that this is the right thing for your clients and this approach will provide them value, then the exercise will be worthwhile.

A key part of the due diligence process is that you need to ascertain whether the service by the Discretionary Investment Manager (DIM) is on an ‘agent as client’ basis or ‘reliance on others’ basis. The PFS have a great document which details the differences of these contracts and the implications of each – https://www.thepfs.org/media/10122157/agent-as-client-what-you-need-to-know.pdf

Will the firm act as a co-manufacturer?

A ‘co-manufacturer’ will mean that the firm will be involved in the decision making as to what funds are held within the MPS, but it is the MPS provider who is responsible for running the portfolios under their discretionary mandate. For some firms, this means that they still have an input as to the direction of the portfolio and are representing their clients. However, under this arrangement the financial planning firm itself is not absolved from total responsibility. It needs to be documented in writing who is responsible for what under PROD 3 and the Consumer Duty rules. It will also need to be disclosed to the client as to the firm’s involvement with the DIM.

Once the firm has decided which route they want to go and what DIM(s) they want to work with, the firm will need to update

• PROD records
• The firm’s Centralised Investment Proposition
• The firm’s Centralised Retirement Proposition.

• The firm’s Value Assessment

About Mel Holman

Mel is a certified and chartered financial planner and has worked in the field of compliance since 1995. Mel is Director and founder of CATS. Mel formed CATS in 2005 after realising that Financial Advisers firms had a need for a Compliance Support company that rolled up their sleeves and got involved to take away the stress of managing a business whilst ensuring they were complying with the regulator.

Whilst Mel is one of those strange people who enjoys compliance, in her spare time she enjoys running, general keep fit and the occasional glass of wine and spending time with her family, especially her two Granddaughters.

This feature was part of our MPS Insights 2025 publication – designed with advisers’ needs in mind. You can download your copy of the publication here…. https://wealthdfm.com/2025-26-managed-portfolio-services-mps-insights/