The Consumer Duty has obligated advisers to review existing centralised investment propositions (CIPs). The new regulations aim to ensure CIPs are aligned to client needs, objectives, and target markets, while ultimately delivering value.

The introduction of the Sustainability Disclosure Requirements (SDR) has added an additional layer of scrutiny for sustainable investment solutions. SDR recognises that there is a different set of considerations to take into account when it comes to sustainable portfolios, as well as a potentially different set of risks to manage - especially while maintaining a client's attitude to risk.

Fiscal shifts

Furthermore, the UK government recently announced that the annual exempt amount for capital gains tax will reduce from £12,300 in the 2022/23 tax year to £6,000 in 2023/24 and then to £3,000 in 2024/2025 and subsequent tax years. This is a headache for advisers managing clients with unwrapped investments or investments within a general investment account. The tax changes have increased the number of clients with potential capital gains tax liabilities as smaller levels of investment growth begin to exceed falling allowances.

Is outsourcing in order?

Given the additional governance that comes with increasing regulatory intervention, we’ve seen more advisers outsource their investment proposition to third-party providers. However, not all outsourced investment solutions are created equal. There’s more than one way to achieve a well-diversified portfolio designed to deliver a specific outcome. 

The challenge for advisers is how to select the right solution for each client: portfolios that are not only designed to deliver on long-term investment objectives, but also to reflect individual circumstances and needs.

Multi-asset fund or managed portfolio service?

Multi-asset funds (MA) and managed portfolio services (MPS) are two types of outsourced investment solutions with fundamental similarities and key differences. Some of these characteristics are quite distinct, while others are more subtle. Both solutions feature diversification, consistency, transparency and flexibility. Both offer active, passive, and sustainable investments.

Ultimately, the suitability of an MA portfolio or an MPS depends on each of your clients’ personal financial situations, timescales, investment objectives, and attitudes to risk. Below we set out the key MA and MPS considerations for you:

Strategic asset allocation

MA portfolios are typically dynamically managed to an agreed strategic asset allocation (SAA). Many MA funds in the risk-targeted space use a model with defined risk and return objectives aligned to clients’ risk profiles The manager has the flexibility to rebalance the portfolio with daily cashflows, or adjust the asset allocation in response to the evolving opportunities and risks presented by a fluid market backdrop.

An MPS is typically dynamically managed using a model with defined risk and return objectives. The model will be rebalanced periodically to ensure the portfolio continues to deliver to its stated criteria, either at stated intervals or in response to specific triggers. This approach provides consistency and transparency.

Complexity

The single fund structure of an MA fund can make it more straightforward to monitor and understand than an MPS. Use of securities such as exchange-traded funds (ETFs) is easier within an MA fund due to the centralised management of a single fund structure.

An MPS is underpinned by a simple, rigorous framework of rules. Because it is managed on the basis of specific rules and parameters, it tends to have a relatively high level of transparency. Platform technology sometimes restricts the holding of some investments within an MPS (for example, investment trusts and ETFs).

Rebalancing/management of risk profile

For MA funds, rebalancing is continuous within the fund structure. With MPS this is typically quarterly, dependent on the provider and platform capability.

Tax efficiency

Buying and selling within MA portfolios will not trigger an immediate event for capital gains tax (CGT) purposes, as transactions take place within the portfolio without involving the individual investor. Rebalancing a client’s portfolio takes place automatically within the fund and will not create an immediate CGT tax liability.

Buying and selling within an MPS will be treated as a trade by the individual investor for CGT purposes, unless the MPS is sheltered from tax within a tax-efficient wrapper such as a pension or an ISA. Rebalancing a client’s portfolio can potentially create an immediate CGT tax liability.

Reporting and transparency

MA funds generally tend to offer standardised reporting on performance and allocation, with limited scope for customisation or ‘look through’ detail. MA fund performance will be consistent across platforms using the same share class.

MPS investors benefit from full transparency offered by the platform from which the service is accessed. It is possible to view and monitor performance and underlying investments in detail, often with the ability to customise reporting. MPS performance can potentially be inconsistent across platforms dependent on the execution of rebalancing and differing platform technology.

Availability on platforms

MA funds are widely available on investment platforms. Portfolio execution risk is managed within the fund centrally by the manager.

Managed portfolio services are widely available on investment platforms. Some platforms have difficulty in holding, or systematically rebalancing certain investments – for example, ETFs, within an MPS. Portfolio execution risk is managed per platform and is subject to platform capability.

Portability

MA funds can usually be re-registered platform-to-platform. MPS portfolios cannot usually be re-registered platform-to-platform.

abrdn’s MyFolio multi-asset fund of funds: the best of both worlds

At abrdn we understand the need to have different portfolio options for different client and adviser requirements. We’re pleased to offer highly-rated managed portfolio services and multi-asset fund solutions.

The abrdn MyFolio multi-asset fund of funds range offers the best of both worlds for your clients. The range features globally diversified, dynamically managed portfolios, as well as clear, detailed, rich reporting via the MyFolio Lookthrough Tool.

With the MyFolio Lookthrough Tool you can:

MyFolio comprises six ranges of risk-targeted, cost-effective funds with different, sustainable options, and risk levels. Each fund offers a diversified blend of asset classes, sectors and regions, alongside a choice of investment styles. The strategic asset allocation (SAA) takes a forward-looking approach, forecasting asset class returns over the next ten years. This is reviewed regularly to determine the optimum asset mix for each risk profile and find out if any changes are required.

Helping you make the right decision for your clients

The choice between an MA fund and an MPS is far from binary. Every advice business is different, servicing different clients and markets with varying needs. There’s no ‘one-size-fits-all’ standard solution.

We understand that the primary duty of any adviser is to act in the best interests of every client by recommending a suitable investment solution. That’s why the MyFolio fund range has been designed to align with your financial planning processes. We aim to support you in selecting the solution that’s designed to deliver the right long-term outcome for your client.

For more information on abrdn’s MyFolio fund range, click here, or contact your usual abrdn investments business development manager.

Alternatively, click here for information on abrdn Managed Portfolio Service.

The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Tax rules can change.