It was the best of times (for model portfolios); it was the worst of times (for multi-asset funds). Model portfolios continued to see bullish net sales throughout a challenging 2023 retail investment environment, while multi-asset funds fell into net outflows.
In 2023 model portfolios posted gross sales of over £65 billion and net sales of £10.1 billion through the financial adviser channel. Multi-asset funds, meanwhile, posted gross sales of under £25 billion and net outflows of £0.4 billion via the same channel. 2023’s net sales gap of £10.5 billion between MPS and multi-asset funds represents a significant rise from the £4.6 billion gap recorded in 2022.
Source: ISS Market Intelligence
Hope is not lost for multi-asset funds, however. The glass half full perspective reveals that the opportunity has never been greater. If one looks at multi-asset funds and MPS as part of the same multi-asset solution universe, the pie has likely never been bigger. The two solutions accounted for an estimated 70% of the gross sales in terms of on-platform investment fund gross sales in the financial adviser channel.
Source: ISS Market Intelligence
Working in multi-asset investment funds’ favour is their breadth of distribution within the financial adviser channel. While multi-asset investments gross sales are overshadowed by their model peers, their reach into the financial adviser channel extends beyond that of model providers; this applies both in a global sense and at the provider level.
Multi-asset funds found themselves being sold by over 6,500 financial adviser firms compared to just 4,934 for models. And while many of these adviser firms are small in stature, from a volume perspective, adviser firms using multi-asset funds accounted for more than 95% of gross sales in the channel compared to just 90% for firms using model portfolio solutions.
While multi-asset funds appear to have a slight distribution advantage at a global level; the statistics are even more striking at the individual provider level. Despite over 20 multi-asset fund providers having 1,000+ active relationships in the second half of 2023, not a single model provider reached this level. That said, the average model relationship was worth £2.6 million in six-month gross sales, compared to £0.2 million for a multi-asset funder provider in the second half of 2023.
Source: ISS Market Intelligence
The race between providers and products is not simply about broadening distribution. It is also about finding the right formula to deepen one’s share of wallet. Opportunity is after all a function of the volumes of one’s distributor relationships and the share of wallet achieved. Maximising this function is about identifying the right firms and targeting them with the right solution. For the latter, this increasingly involves being “product wrapper agnostic.” Unsurprisingly, many of the largest multi-asset fund providers have created model programs and vice versa. Winning for many firms will thus be based on having a product shelf that uses the language of “and” as opposed to “or”.
Model portfolio providers clearly won the race in 2023. Whether this will continue remains an open question. Model providers are beginning to see the challenges of success, such as the complexities of managing models across 20+ retail platforms and multi-asset providers have been sharpening their pens. The bright side for all offerors is that gross sales for these solutions grew by 6% in 2023. And there is no reason to think that 2023’s totals cannot be topped in 2024.
Talk to us today to learn more about how ISS Market Intelligence can enhance your chances of winning in the UK’s multi-asset solutions arena.
Commentary by ISS Market Intelligence
By: Benjamin Reed-Hurwitz, CFA, Associate Director, EMEA Research Leader ISS Market Intelligence
