MPS market evolving amid FCA review

The model portfolio service (MPS) market is experiencing a broad range of changes in investment trends, portfolio costs, and adviser recommendations as the Financial Conduct Authority (FCA) continues its review of the sector, Defaqto has found.

Its Defaqto In Focus: MPS report highlighted a notable increase in passive investing, through both a rising number of passive portfolio launches and significant weightings in passive funds within active portfolios.

Lower cost was found to be the primary driver, with 64 per cent of advisers citing keeping costs low as the main reason to use passive portfolios.

Defaqto noted that newer portfolios were coming to market at lower costs than older ones.

Meanwhile, new multi-asset fund launches outnumbered new MPS portfolio launches in 2025 and 2026 for the first time since 2019, with multi-asset funds holding around 60 per cent of the total combined assets of both multi-asset and MPS on adviser platforms.

The research also identified a fall in ESG demand, with responsible investing recommendations down from 30 per cent at the end of 2021 to around 10 per cent today.

Defaqto added there was greater emphasis being placed on portfolio due diligence, and the number of advisers using its Comparator benchmarks had increased.

“We're seeing some interesting changes in the balance between MPS and multi-asset funds, alongside a continued shift towards passive investing,” commented Defaqto head of insight, Andy Parsons.

“Cost is clearly important, but it's not just about finding the cheapest portfolio. With some active portfolios holding substantial investments in passive funds, advisers need to look carefully at what they're paying for and whether they're getting value for their clients.

“The FCA's review brings this into sharper focus. Comparing portfolios on a like-for-like basis and demonstrating robust due diligence is becoming increasingly important.”

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