Tailoring, whether that be suits or investment solutions, used to be the domain of the wealthy. They often went hand-in-hand: Savile Row suits were de rigour for asset managers in plush City offices.
Fast-forward to 2025 and, while the suits and offices still exist, technology has opened the door to tailored solutions for anyone with a reasonable amount of investible assets.
Among the throng of DFMs aiming to boost their assets under management, some are seeing tailoring as a way to differentiate their offering, working with IFA partners to add a ‘special’ layer to the service.
But is this a genuine benefit to end clients, or window dressing to help lure advisers away from their existing investment partners?
It’s certainly a hot topic among DFMs. Everywhere I go it’s a question I get asked.
Looking at the findings of our latest MPS Proposition Comparison report (December 2024), where we profile 52 DFMs and reveal results from interviews with 30 representatives of the firms plus a survey with 340 financial advice professionals, it’s clear that tailoring has gained traction, particularly for firms that promote a service-led proposition.
What makes a Consumer Duty friendly investment solution?
Every DFM we interviewed said they differentiate on service, with some leaning heavily on it as a competitive differentiator.
Many of those who focus on making service standout are offering tailored solutions to their adviser partners, with bespoke literature for end clients.
They give the advisers access to key decision makers or product specialists. They work to understand the processes within firms to help advisers run more efficient businesses.
Many of these firms will refer to themselves as an insourced investment partner, an extension of an advice firm’s investment committee or centralised investment proposition.
For the past three years we have covered the trend of co-branded, tailored and sub-advised in our reports on MPS.
We define these as follows:
- Co-branded: The DFM manages the MPS but includes the advice firm’s branding. The model is unaltered.
- Tailored: The advice firm and the DFM sit on a joint investment committee, but the DFM has a majority vote and runs the MPS.
- Sub-advised: The advice firm has discretionary permissions but appoints a DFM for strategic and tactical asset allocation.
Among the 51 firms that provided data on this question, 41 offer co-branded models. Most that don’t are part of a financial advice firm or a business that also has an advice offering.
Interestingly, more than half offer a tailored solution. Tailored models typically involve a joint investment committee, a co-manufacturing agreement delineating responsibilities clearly and some degree of customisation from standard models. No firms we interviewed offer fee sharing.
The level of customisation varies greatly from adhering to risk bands for a particular provider (i.e. Dynamic Planner or Defaqto), a price cap, or asset allocation requirements (i.e. 10% UK).
Consistency is a concern
For our latest report, we increasingly heard that some firms are reluctant to offer tailored models under a co-manufacturing agreement. They are worried about inconsistent client outcomes.
If a model portfolio is an expression of their best ideas, why would they deviate from that? If the models perform differently, which inevitably they will, how can that be justified to the client?
One DFM interviewee said: “I spend my life trying to convince advisers that you don’t need to bark and be a dog yourself. Don’t give us limitations, otherwise I will come to you at some point and say you underperformed because of a constraint you gave me.”
Another said: “We are putting our best research and product into standard MPS. The challenge is if those tailored portfolios outperform or underperform how do you explain that to underlying clients. The sub-advised models we run are the same as our standard portfolios. We stick to that because that is our best research and our bread and butter.”
Another challenge of offering tailored models is the operational complexity that comes with managing a growing number of models across platform.
One adviser told us: “When you’re running a low-cost model, you need to keep it straightforward. You have to think about the costs of hiring platform operations staff to affect the rebalance. It’s not something we’re looking at.”
So, what can we learn from our findings? Promoting tailoring as a differentiator is one strategy for gaining stand-out but the more DFMs that offer it, the less of a differentiator is becomes. But the nagging question remains: is a tailored portfolio any better than a standard MPS for the majority of investors?
No doubt the market will decide. It’s certainly one to watch this year.
Heather Hopkins is managing director of NextWealth
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