By Steve Owen, head of proposition at Morningstar Wealth
In the aftermath of RDR and the five years that followed (remember all those super clean share classes?), a platform’s job was reasonably contained. It involved hosting single-strategy and multi-asset funds cleanly, valuing them accurately, and reporting on them in a way a client could follow.
Investment selection was often something else entirely, a specialist undertaking with platform decisions made separately. The two due diligence processes could exist in harmonious parallel because the platform’s role in the investment outcome was largely administrative.
Then came MiFID II and PROD, which started to pull everything together a bit more keenly, and client segmentation was suddenly formalised across thousands of businesses. Matched with the emergence of managed portfolio services and drawdown strategies, the decision over which platform to pick started to become a crucial part of the Central Investment Proposition (CIP).
MPS solved a real problem for advisers. Instead of building, maintaining and defending in-house portfolios, a firm could outsource that construction to a specialist and generate consistency across the client bank in return. On the investment side, this made life considerably simpler so advisers could focus on financial planning.
But it undoubtedly made things harder on the platform side. For the platform, at least. The systems were originally built to administer individual funds, whether single strategy equities, single stocks or multi-asset OEICs. They were not built to make a multi-fund model behave, trade and report as a single proposition.
Most platforms have adapted somewhat since, but that adaptation has been uneven, and some of that unevenness is still present in the day-to-day experience of running MPS on a platform.
This is the point at which the two have become a united proposition within advice businesses. When Morningstar Wealth’s research with The Lang Cat asked what limits further expansion of MPS usage in advice firms, one-in-five advisers pointed to platform limitations. Plus, 83% rated CIP capability “very” or “extremely” important when selecting or reviewing a platform.
MPS and platform have become intertwined in advice firms when it comes to implementing the former.
Due diligence processes
So, you’d expect firms to combine MPS and platform due diligence processes to be the norm, but the data doesn’t fully support that. Only 39% of advice professionals described their CIP reviews as fully aligned with their wider platform and provider due diligence cycles.
There seems to be a remaining separation between platform and investment provider due diligence despite the fact they are inseparably implemented in practice.
The same research found 27% of advisers expect MPS usage to increase materially, with a further 19% expecting some further growth. As MPS accounts for more of a firm’s book, any remaining split between platform and CIP due diligence will apply to a larger share of client outcomes, generating not only inconsistency but also more operational drag and inefficiency.
See also: Fundscape: Three platforms to dominate 40% of adviser assets by 2030
The MPS market is moving into its second phase, where the question of whether to outsource is largely settled. Instead, the driver of adviser satisfaction becomes operational design and platform harmony, whether that is tax handling in taxable wrappers, cash management for income, straight-through processing or reporting transparency.
One adviser interviewed for the research put the practical consequence plainly: “The platform matters more than I expected. If it’s clunky, the ‘efficient’ model stops being efficient.”
Where a platform doesn’t help deliver the efficiencies MPS promises, it may be a sign that the CIP due diligence and the platform due diligence need to be re-examined in tandem. MPS was built to make advisers’ lives easier versus running their own models, but if the platform is not aligned to the fullest extent, then their lives arguably get harder – the exact opposite of what the industry is striving for.
