Performance measurement for MPS has been an inexact science. Until the past couple of years, advisers have had to compare self-reported performance data from MPS providers and use their own methods to make comparisons between offerings. As performance measurement groups bring some process and discipline to MPS comparison, the situation for advisers is improving, but there are still problem areas.
The past two years have seen a flurry of performance measure tools for MPS come to market. Morningstar launched its UK Managed Portfolio Database in 2022, with the lang cat launching its Analyser tool shortly afterwards. Defaqto launched its Comparator tool in May of this year, while Mabel Insights also came to market in 2024.
These performance measurement groups have ironed out some of the problems with measuring MPS performance. They have helped ensure that comparisons between providers are robust, for example.
Ben Hammond, managing director of insight and consulting at the lang cat, said: “A lot of our work is about getting that performance data on a like-for-like basis, and ensuring we have detailed data from the providers directly. This means advisers can do their MPS due diligence and comparisons with confidence.”
They also bring in proper groupings. Defaqto’s solution, for example, puts each MPS into a specific groups – defensive, cautious, balanced, growth and adventurous.
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Andy Parsons, insight manager for funds and DFM at the group, said these categories won’t necessarily be the same as the MPS providers assign themselves, but are based on a ‘look-through’ of the provider’s allocation and historic performance. Defaqto now publishes league tables over one, three and five years for each of the five areas, taking data from the asset manager based on a £1,000 invested from launch principle.
The performance measurement groups can also iron out any erroneous data supplied by the asset manager. Parsons said: “We will pick up any anomalies and go back and challenge those with the provider. We aim for it to be as close as possible to what they publish on their factsheets.”
These tools have made life far easier for advisers selecting and running MPS on their platforms. However, there remain problems with MPS performance measurement more broadly. All the analyser tools are reliant on the data provided by the asset manager and while there is no reason to assume that isn’t accurate, problems with MPS implementation mean that it isn’t necessarily the performance received by the client.
Simon Evan-Cook, manager of the Downing Fox multi-asset range, said “Performance still comes from the MPS provider, who is submitting it to the tracking services. So the MPS groups are still marking their own homework.”
This creates a distinction with fund of funds, where performance is independently verified, based on and the extent to which capital in the fund has grown.
Evan-Cook said the realised performance for investors may be different. Not all funds are available on all platforms, so substitutions may occur. That means some investors won’t be getting exposure to the ‘pure’ MPS. There is also a problem around market timing and rebalancing. Inevitably implementing MPS changes on a platform will take time, and, depending on the efficiency of the platform, could see clients out of the market for a period of time.
He added: “The performance you’re getting on a factsheet is only an ‘idea’ of what performance should be, as long as you’re not dealing with the real world problems of rebalancing and those issues. Swapping a fund can take a day or two. The performance the client gets is not going to reflect these administrative difficulties.”
Evan-Cook said these problems do not occur with a unitised proposition. “No matter what platform we’re on, no matter how the client accesses it, no matter what time a client accesses our fund, they’re getting exactly the same the same portfolio as all the other clients. Consumer duty-wise, it’s beautifully clean and simple.”
Hammond said the performance differences these anomalies create shouldn’t be overplayed. Also, performance isn’t the only reason people use MPS.
He added: “Performance always needs to be taken into account when you’re looking at overall suitability for the client and their personal circumstances. So yes, historic performance is going to be important, and something advisers will take into account, but it’s the overall suitability of the solution that’s the key, and the underlying asset allocation.”
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Parsons said that cost is still the most important selection criteria for advisers using the Defaqto service. The latest Morningstar UK Managed Portfolio Landscape 2024 shows MPS remains cost competitive. Median management fees of active and blended offerings have held steady at 24 basis points, while the median management fee of a passive portfolio has crept lower from 15 to 12 basis points.
The report also shows the balance is tipping towards passive MPS. It found that while 48% of managed portfolios are labelled active, its look-through analysis showed that only 37% of portfolios have less than 25% exposure to passives.
Portfolios labelled as active have declined to 48% in 2024 from 61% in 2022. This move towards passive could help with some of the anomalies around performance. There would be fewer substitutions, for example. Partial unitisation, such as that used by some Quilter and Schroders offerings, is also a potential solution.
Performance measurement and comparison for MPS is improving as more tools come into the market. Advisers no longer have to do the heavy-lifting themselves, with a deluge of difficult-to-compare data. However, until the implementation problems for MPS on platforms are resolved, anomalies will remain.
