In the previous blogs, we looked at how managed portfolio services (MPS) have proliferated as advice firms seek to improve efficiency and mitigate the compliance burden while maximising value for clients. Yet standard models are becoming increasingly commoditised, leaving some firms feeling they’re surrendering control to an off-the-shelf solution that looks broadly the same as everyone else’s.
How can firms combine adviser insight and value with DFM expertise, scale and governance? Custom portfolios are in a unique position to offer the best of both worlds, and increasingly co-manufacturing is emerging as the logical next step in the evolution of MPS.
The meteoric rise of MPS is understandable because, on paper, it addresses many of the contemporary problems advice firms face. A move towards outsourcing portfolio management has been underway for some time, accelerated further by Consumer Duty.
However, while it’s easy to assume that all outsourced investment management is broadly the same, this is far from the case. That misconception has prompted increased regulatory scrutiny, with the FCA concerned that some advisers may not be sufficiently discerning in how they select and oversee outsourced solutions.
Growing interest in bespoke portfolios reflects advisers’ desire to deliver consistently high-quality client outcomes while still reducing the operational and compliance burden that comes with running portfolios in-house. With greater regulatory focus on MPS selection and oversight, co-manufacturing is perfectly positioned to shape the next phase of portfolio management.
Managed portfolios turning the head of the regulator
The increased appetite for MPS among advice firms has attracted the attention of the FCA. In February, the regulator sent an asset management supervisory letter indicating its intention to conduct a review. It acknowledged the potential benefits of the MPS market, but highlighted concerns surrounding advisers’ approach to product selection (see my article from earlier this year for additional info). Specifically, its stated aim is “to provide confidence that investors are receiving good outcomes from MPS and share good practice on how firms are doing this.”
It’s a welcome development. Outsourcing portfolio management has clear advantages and it’s reassuring to see the regulator commit to clarifying expectations and ensuring that outsourced solutions genuinely support good client outcomes.
Not all MPS are created equal
Without speculating on the FCA’s conclusions, but with the principles of Consumer Duty in mind, we can anticipate some of the areas likely to be emphasised. Given the regulator’s focus on good customer outcomes, advisers selecting an MPS should be clear on:
- Whether the underlying products and funds have been robustly researched and continue to deliver consistently good outcomes
- Whether all roles and responsibilities between the adviser and DFM are clearly defined and are carried out
- Whether the oversight process is sufficient to evidence suitability and value.
Although off-the-shelf MPS can meet these standards, it’s by no means guaranteed. Client needs are dynamic, often complex and not always suited to a uniform set of models.
This is where a co-manufactured portfolios add clear value. In contrast to standard MPS, they are designed with transparent, traceable client outcomes in mind. Investment selection and rebalancing can be aligned more closely to the adviser’s specific target market and client needs, making suitability stronger and easier to evidence.
They also provide a clearer definition of responsibilities between the adviser and DFM. This helps firms alleviate the compliance burden they sought to address through outsourcing while maintaining oversight and ensuring they can evidence suitability if the regulator comes calling.
Why co-manufacturing matters now
The commoditisation of traditional MPS models has created a growing gap between efficiency and individuality. Advisers increasingly want solutions that reflect the needs of their client base without reintroducing the operational strain of managing portfolios in-house. Co-manufacturing bridges this gap by enabling advisers to shape the asset allocation and fund selection, while drawing on the DFM’s governance, technology, and scale.
This partnership reduces compliance risk and administrative overhead yet preserves the adviser’s ability to differentiate their proposition, a critical advantage in a market where standardisation threatens to erode perceived value.
Changing worlds and propositions
Investment management goes beyond the capital a client entrusts to an adviser. It requires significant time, resource and expertise to ensure portfolios remain aligned with clients’ financial objectives. While regulation is essential, it can add operational pressure, leading many firms to seek approaches that help manage that burden more effectively.
Although outsourcing portfolio management may initially appear to involve relinquishing control, done well, it can enhance control, allowing firms to channel resources and expertise towards the most valuable aspects of the advice relationship. Co-manufacturing is uniquely placed to support this shift by providing a flexible framework for firms to evolve their proposition as both regulation and client expectations continue to change.
As outsourcing continues to gain momentum and regulatory scrutiny tightens, custom portfolios offer advisers a robust, scalable and defensible way to deliver strong outcomes, strengthen relationships, demonstrate value and support business growth. All this is why co-manufacturing is emerging as the future of managed portfolios.
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.
