Investment outsourcing surges as advisers shift strategy: Quilter
LONDON, UNITED KINGDOM — The investment landscape has dramatically transformed over the past four years, with financial advisers increasingly moving away from managing portfolios themselves in favor of outsourced solutions.
Remarkable growth in outsourced investments
Quilter platform data reveals a substantial shift in investment management approaches since 2020. Outsourced investments in Discretionary Fund Manager (DFM) models and Managed Portfolio Services (MPS) have skyrocketed from 16.7% of platform assets at the end of 2020 to 41.9% by the end of 2024. This represents a staggering 331% increase in total assets under these outsourced management structures during this period.
Meanwhile, adviser-managed assets have experienced a significant decline, dropping from 28.1% of platform assets in 2020 to just 15.8% by the end of 20241. In absolute terms, adviser models now account for £13.4 billion, slightly down from £13.9 billion in 2020, showing stagnation compared to the explosive growth in outsourced investments.
Factors driving the outsourcing trend
Several factors have contributed to this shift, including reduced fees and diminishing adviser appetite for running advisory portfolios, particularly following the challenges in fixed income markets during 20221. The managed portfolio service market has experienced exponential growth, with discretionary MPS assets increasing by 36% in the year ending September 30, 2024, according to Next Wealth findings.
Graham Folley, Head of Business Development and Discretionary Sales at Quilter, highlighted the remarkable transformation: “MPS growth in the past decade has been nothing short of phenomenal. In 2014 we had only three discretionary managers with model portfolios on the platform with assets around £350 million (US$443 million). That number now stands at 149, representing over 3,000 portfolios and close to £18 billion (US$22.7 billion) in assets under management, excluding our own WealthSelect managed portfolio service.”
Folley also noted that “The trend is clear and adviser appetite to administer advisory model portfolios has markedly diminished. Clients and advisers clearly like the visibility of both the activity and the investments that an MPS provides, and coupled with the downward pressure on fees, they are fast becoming the preferred way to implement the investment means of a financial plan.”
However, he cautioned about potential risks in this new landscape, particularly regarding the increasing use of passive investments to reduce costs, which could lead to concentration in a small number of securities, especially with the dominance of U.S. stocks and the “Magnificent Seven” in global indices.
