MPS – differences on and off platform

Mike Turner – Assistant Research Manager for Funds and DFM

There are distinct differences between managed portfolio solutions (MPS) on and off platforms. In this article I remind you of what you should be aware of when considering the distribution channel.

What's in a portfolio

Some MPS propositions have been designed for platform distribution while others have been developed for direct distribution and are now also available on platforms.

Defaqto has identified that currently 64% of platform-distributed MPS propositions have been specifically designed for platform distribution. The underlying holdings are likely to be pooled investments that the DFMs can be reasonably sure are available on the platforms through which the portfolios are distributed.

78% of MPS portfolios distributed through platforms are solely constructed using pooled investments and of those specifically designed for platform distribution, 94% are constructed solely of pooled investments.

MPS propositions that have been developed for direct distribution tend to invest in a greater variety of investment types, including direct equities and fixed interest, which should incur lower costs within the portfolio when compared to portfolios that are constructed from active funds where there will be additional charges such as the fund manager’s fee.

32% of MPS propositions developed primarily for direct distribution are constructed using a mixture of investment vehicles. In comparison, for MPS propositions designed specifically for distribution through platforms, only 6% invest in a variety of investment vehicles (direct and pooled).

Who holds custody of the assets will depend on whether an MPS proposition has been bought directly from the DFM or via a platform. If bought directly from the DFM, the custody of the assets will be held by the DFM’s custodian (or custodians). If bought through a platform it's the platform’s custodian who hold the assets.

Which portfolio options are available

MPS propositions bought directly from the DFM usually offer a greater range of portfolio options, some of which may not be offered through platforms due to their investment limitations. 

Of the MPS propositions that are distributed both directly from the DFM and via a platform, on average there are eight portfolio options available. When looking at the range through a platform there are some differences:

What to take away from this

Even though the name and strategy of a portfolio may be the same whether bought directly or through a platform, the custody of assets will be held by different custodians, and as such different total charges tend to apply.

Generally speaking, MPS propositions designed for platforms are likely to invest in pooled investments, whereas direct propositions are more likely to invest in a variety of investment vehicles, ranging from pooled investments through to equities and fixed interest.

And there are portfolio options available directly through the DFM that aren’t always offered through platforms.