Model portfolio fees have been reduced by nearly half in just three years, bringing them in line with robo advisers and investment platforms, as the wealth managers that use them face increasing cost pressure.
Consultancy NextWealth’s latest MPS (model portfolio service) Proposition Comparison Report has found the average total cost to clients for these offerings – typically invested in by wealth managers and financial advisers for their clients on a discretionary basis – fell to 0.54% as of September 2024 from 1% in 2021.
This has come primarily from a fall in the average MPS annual ongoing charges figure (OCF), or fees including the cost of underlying investment instruments, from 0.75% basis points to 0.36% of invested assets.
NextWealth attributed the decline in part to a broad shift by wealth managers towards making greater use of passive investment strategies, such as index tracking funds, which typically have much lower charges than actively-managed funds.
This brings model portfolio fees further in line with those of the low-cost portfolios offered by robo-advisers such as Nutmeg, Moneyfarm and Wealthify. These have successfully competed with the major wealth management groups in terms of the cost of managing portfolios.
Robo advisors typically do not offer or charge for advice, which is a significant component of the fees taken by discretionary wealth management firms.
For example, Quilter – one of the largest wealth groups as well as providers of discretionary investment – shows a typical ongoing fee of 1.52% on its website, not including an initial advice fee which ranges between 0% to 4% of assets.
Of the yearly fee, around half, or 0.7% of all assets, is paid for advice while 0.59% is paid for investment in its in-house discretionary solution and 0.23% is paid for administering client assets on its investment platform.
The biggest MPS providers provide a third-party service to advisers. A 2023 report by consultancy by Platform found such providers now run around a fifth of all assts on adviser platforms.
Tatton Investment Management’s MPS is currently the largest on the market, according to NextWealth, overseeing £17.6 billion on behalf of UK advisers. It now carries an OCF of 0.54% (including underlying fund costs) and an annual management charge of just 0.15%.
By comparison, the UK’s biggest robo-adviser Nutmeg manages around £4.5 billion. Its fully managed service annually charges 0.75% up to £100,000 and 0.35% on any amount beyond this, excluding fund costs which take another 0.20% of invested assets. There are no advice charges.
Moneyfarm charges a management fee of 0.65% across the board, again excluding underlying fund costs of 0.20%. Wealthify charges a management fee of 0.6%.
Investment platforms have also been launching their own low-cost portfolios. Last month ETF-trading platform InvestEngine launched a range of fully managed investment portfolios named Lifeplans, charging a yearly management fee of just 0.25%.
Robin has more than six years of experience as a financial journalist, most of which were spent at Citywire, and covers the latest developments in the investing, trading and currency transfer space. Outside of work, he enjoys reading literature and philosophy and playing the piano.
You can contact Robin at robin@goodmoneyguide.com
