FCA review should drive higher standards as MPS market grows – Isio

The Financial Conduct Authority’s (FCA) review of the model portfolio service (MPS) market should encourage the sector to move beyond product-led competition to focus on the quality of investment decision making, Isio has stated.

Isio Investment Management senior portfolio manager, Daniel Nilsson, said that, as the review continues, the focus on governance, oversight, value for money, and investment propositions was becoming increasingly important.

“With the sector growing rapidly in recent years, greater scrutiny in these areas is both appropriate and necessary, particularly as advisers seek to demonstrate that the solutions they recommend are delivering good outcomes for clients,” he stated.

Nilsson argued that scale, longevity, and brand recognition should not be substitutes for a robust investment process, with the strongest MPS providers being those that can demonstrate how decisions are made, who is accountable for them, and how portfolios are monitored and challenged over time.

“Advisers should expect evidence-based portfolio construction, formal governance structures and a clearly articulated investment philosophy, rather than relying on broad claims about performance or diversification,” he said.

Another positive development would be more consistent guidance on performance reporting and benchmarking, Nilsson added, helping advisers to compare propositions, understand the risks, and assess whether investors are receiving value.

Furthermore, improved transparency was identified as a driver for making it easier to distinguish between providers that have integrated governance throughout their investment process and those that were treating it primarily as a compliance exercise.

“Ultimately, the FCA review should encourage the MPS industry to move beyond product-led competition and focus more closely on the quality of investment decision making,” Nilsson concluded.

“Providers that combine strong governance, transparent reporting and institutional-quality portfolio oversight will be best placed to support advisers and deliver better long-term outcomes for investors.”

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