Model portfolio services deserve closer questions
By Mark Buck, Chief Operating Officer, Mitchell & Mitchell Asset Management
Model portfolio services (MPS) have an understandable appeal. They give advisers access to a defined investment process, regular portfolio oversight and a consistent way to serve clients with similar investment needs. A well-run model can provide diversification without asking each adviser to select and monitor every underlying holding.
There is also a reason for the present scrutiny. The model shown on a factsheet is only one part of what a client receives. An adviser recommends it, a manager changes it, a platform implements those changes and charges are taken at several points. A sound investment idea can still produce a disappointing client experience if those parts do not work well together.
The FCA is reviewing how MPS firms apply the Consumer Duty. Its published questionnaire asks about portfolio construction, mandate adherence, oversight, target markets, conflicts, performance and charges. It expects to publish findings in Q1 2027. These are lines of enquiry, not findings of failure. They do, however, give advisers a useful framework for due diligence now.
Start with the whole cost
The headline MPS fee is rarely the entire cost of holding the portfolio. Clients may also pay underlying fund charges, transaction costs, platform fees and advice fees. The amounts and the party receiving each fee can vary by platform, share class, portfolio size or group structure.
Consider an illustrative £100,000 portfolio. If the manager charges 0.25%, the underlying funds 0.30%, the platform 0.20% and ongoing advice 0.50%, those four annual charges amount to £1,250, or 1.25%, before any additional transaction costs. These are illustrative figures, not M&M charges. The point is that comparing a 0.25% MPS fee with another provider’s single quoted figure would tell the client very little about the full arrangement.
Value is a separate judgement from price. A cheaper service can be poor value if it fails to deliver its intended benefits, while a more expensive one must be able to justify the extra cost. The FCA’s price and value guidance asks firms to consider the benefits and limitations for the customers they serve. Advisers should ask for a realistic total cost illustration, in pounds as well as percentages, and an explanation of what the client receives for it.
Look beyond the risk label
Labels such as cautious, balanced and growth make a range easier to navigate, but they are not a shared industry scale. Two portfolios with the same label can hold different assets, use different risk measures and behave differently when markets fall. The adviser needs to understand the proposed model’s objective, asset mix, likely sources of loss, investment horizon and limits on the manager’s discretion.
The discussion should also cover what happens after selection. How far may asset weights drift before a rebalance? What could trigger a change outside the normal timetable? Does oversight examine the liquidity of the portfolio as a whole, as well as its individual holdings? If assets do not trade daily, how might that affect a client who needs cash?
The FCA questionnaire asks firms about rebalancing thresholds, stress testing, liquidity and the time needed to liquidate a model to cash. A provider should be able to give an intelligible account of its own approach, including the limitations of its risk measures. Neither a risk rating nor a stress test removes the possibility of capital loss.
Check what the performance figure measures
Model performance is useful evidence about the manager’s investment decisions. It is not necessarily the return experienced by a particular client. An individual may have invested partway through a reporting period, held cash, faced a delay in implementation or paid charges excluded from the model figure. Platform and account-level differences also need to be understood.
Ask whether reported returns describe a model or actual client portfolios, whether they are gross or net of fees, which fees are included, and how the benchmark was chosen. Compare like with like over a sensible period and consider both strong and weak markets. A short run of outperformance says little about whether the process is repeatable. The FCA’s questionnaire explicitly asks providers to explain these measurement choices.
Where the client’s actual result differs materially from the model, the useful next question is why. Timing, cash flows and costs may explain a difference, but the provider and adviser should be able to trace it rather than leave the model return to speak for the client’s experience.
Understand the interests around the model
An MPS may include funds managed by the provider or a connected firm. A provider may also work with another firm to design or run the service, with fees divided between them. These arrangements are not inherently wrong. They do require transparent fund selection, a credible approach to conflicts and clarity about who does what.
What evidence shows that a connected fund was selected on its merits? Who can challenge its continued inclusion? Are alternatives considered? Where two firms manufacture the service, who approves the target market, monitors outcomes, changes the portfolio and assesses value? The FCA asks about connected funds, group charges and co-manufacturing in its MPS review. Its December 2025 statement says firms working together should allocate responsibilities in writing according to their actual roles. It does not require both firms to duplicate each other’s work.
Follow the model onto the platform
An investment committee may decide to alter a model on Tuesday. Clients do not all necessarily hold the revised mix on Tuesday. Platforms have dealing cycles and operational processes; new contributions, withdrawals and unsettled trades may affect individual accounts. Advisers should know how changes are sent, when they are normally implemented and how exceptions are identified and resolved.
This is particularly relevant when a model is available across several platforms. The investment policy can be consistent while the mechanics of implementation differ. Asking for evidence of monitoring at client-portfolio level helps test whether the promised service is reaching clients in practice.
Make the target market useful
A provider’s target market should help an adviser identify the clients for whom the portfolio was designed, and those for whom it may be unsuitable. It should say more than “investors seeking growth”. Time horizon, need for withdrawals, ability to bear losses and preferences around cost or investment approach may all affect the recommendation.
Advisers still need to assess suitability for each client. The convenience of placing clients in a small number of models does not make their circumstances interchangeable. The FCA is asking MPS firms how they define target markets for individual strategies and assess fair value for those markets. The adviser’s due diligence and the provider’s product governance should inform each other, while reflecting their respective roles.
Five questions to take to the next review
What is the client’s likely total annual cost, who receives each charge, and what benefits support that price?
What risks does the portfolio actually take, and how are drift, stress and liquidity monitored?
How does the published model return relate to returns in underlying client accounts?
How are connected funds, fee sharing and divided responsibilities governed?
Who is this model designed for, and what evidence would prompt us to reconsider its use for a client?
MPS can be an effective part of an advice proposition. The current debate is a prompt to test the complete service, from recommendation through implementation to the outcome and cost the client sees. Providers should welcome questions that make that chain easier to understand.
This article is intended for professional advisers. It is general commentary and does not constitute a personal recommendation. Investments can fall as well as rise, and past performance is not a reliable guide to future returns.