We’re diving into all things MPS with Elston’s Henry Cobbe

Transcript

Bella Caridade-Ferreira

Hello and welcome to the Compare the Platform podcast. Cut Through the Noise today. I’ve got the lovely Henry Cobbe from Elston Consulting with me. Hello, Henry. Why don’t you tell us a bit about what Elston Consulting does?

Henry Cobbe

Thank you, Bella. It’s great to be here and a lovely view of the Thames from what could be the film modern Internet Age Broadcasting House. So the Elston Consulting, we obviously are an investor solutions firm. Our aim is to help advisers and both on the investment solutions and also build up their kind of business models and on the investment side, we also have two things. We have our ready-made solution via Elston portfolio management, which is hosted in management service. Which the MPS provider. And we also consult to various adviser owned DFMs and help them run their own MPS. So, we have our own MPS app while support for the management and we also help other DFM’s be an MPS provider. So, we’re really close to that market, it’s our core function and we just really there to help advisers.

Bella Caridade-Ferreira

Fantastic. So I’m glad you talked about MPS. There’s a lot of stuff going on. If you’re in the regulator’s shoes, what would you be thinking about when it comes to MPS and the MPS review that they’re embarking on?

Henry Cobbe

Well, umm, I’m not sure what costume I’d have to wear to imagine as a regulator, but I suppose I’ll still stay in a suit. I think that’s probably the safest thing. Do you remember Mr Ben? Not sure, never, said Mr Ben going into the shop. So I think, well, one, we don’t know what’s in it and then we can start, I think with the data gathering state.

Bella Caridade-Ferreira

Yeah.

Henry Cobbe

And it’s not immediately clear from that what dimensions they’ll be looking at. But I think if I was in their shoes, I’d probably be looking at 4 main areas, which I think are most relevant because they’ve mushrooms in attention in a way. So, the first thing I think is what I call the housekeeping. So, the product standardisation is set as a product rather than the service. A second one, I think about how to look at the use of in-house funds. Because that can be done very well or not so well. And the third is around co-manufacturing. I think that’s an important point to look at carefully. And 4th is about anti-greenwashing and that should be about a good 100 pages.

Bella Caridade-Ferreira

That should give us a lot to talk about today, so we’ve got four key topics. MPS review, in-house funds, co-manufacturing and basically green-washing. So let’s start with anti-greenwashing. Sorry. So, let’s just go back to the basics and the MPS review. As you said, we don’t know what’s going to be in it. You said it’s a data gathering exercise.

Bella Caridade-Ferreira

At the moment. Talk me through what you think needs to happen.

Henry Cobbe

Well, I think what’s interesting is that MPS has mushroomed in popularity, right? It’s been the most fastest growing thing in the asset management sector and literally you know, it’s always been a big area and I think we’ve, you know we know lots of platforms have really early on into this into MPS tech. We need a lot of providers to early on to this in terms of MPS solutions and they’re all enjoying fantastic growth and all the fund houses suddenly wake up the same we gotta do PS where’s my MPS? It’s all that MPS everyone’s running, going MPS crazy. Does anyone know? Good MPS? We said so. So, you must be doing well in a way. And this is how they teach. Tax protective or how they were to these tax credits. So, it’s the same in the way for a product. If you think about how regulated funds up, that’s how we launch a multi-asset fund. Let’s compare multi-asset fund with multi-asset MPS. Multi-asset fund is incredibly regulated. You can have a KIDD document, you have a factsheet, one central point of performance for the same terms. You have an SR indicator. You have to have an ENT data file saying what’s inside it, what’s going on and you have an investment benchmark against which is our finalised comparisons. So just like all funds multi-asset funds have to fit into the fund regulation category and they’re and those are very exacting standards, they have to have all those things that are just listed which are standard for all funds. If you go to MPS world. Woo, you don’t need any of that. There isn’t any mandatory reporting standards or formats or disclosures regime. So, everyone slightly does their own thing and they also think like that multi-asset fund versus MPS comparison. There’s obviously different pros and cons between them like and we did a webinar a couple of years ago on MPS versus multi-asset funds and you know there are there are pros and cons of each approach and both from a perspective or both from a positioning perspective. But so interestingly for me it’s about the it’s about the disclosures, it’s about the explosion transparency I think is the big one. Because an MPS is a collection of funds, whereas the multi-asset fund is one fund, and therefore there seems to be an awful lot of burden on disclosure for a single multi asset fund and almost no burden disclosure for MPS.

Bella Caridade-Ferreira

So if I’m reading you right here, Henry.

Henry Cobbe

No one’s ever managed to do that. You’ve been the first, Bella. Coming back to more MPS, what you’re basically saying is that MPS should be treated like any other investment fund, basically in a way. Yeah, because I think it’s look the great thing about MPS is you can launch a strategy with no C capsule, right? So if you maybe have a unitised strategy or a fund, let’s go on to the fund. Well, then, you’ve got to make sure you line the sight in £50m of assets pretty quickly. Otherwise, the cost of running a fund structure which is you know the regulated OEIC, the cost was up the returns. So, launching funds is expensive hobby and should only be done if you’ve got clear line of sight £50m plus assets and be a lot of advice now looking all.

Some funds now because it’s quite handy with CIA world and CT and it is. But you know sub £50m is you’re on a highly to know where whereas MPS you don’t need any seed capsule, you just need an idea and you can you build MPS using very well established funds from leading providers and so they’ve got the liquidity in servers and what you’ve got is the magic source I see MPS as a salad bar. We’re picking the different ingredients mix and match making a perfect combo and you don’t need to actually you just need to set the. It’s so the low capital intensity of MPS is why it’s a very flat barrier to entry, which is great, that’s good. And that’s what got so much innovation in the MPS and that’s the really exciting part. But you know that shouldn’t mean there isn’t a requirement for disclosure. And I think one thing when I started doing in the MPS market back in. 20..15..14. It was like, you know, fact sheets, you’re like, oh, well, how do you know how this guy’s doing? The factsheet might be once a quarter. Some reported gross of the investment management fee, some reporting net of the investment management fee, some do quarterly factsheets and some do a monthly factsheet. Some it’s net of the OCF, some not sure. There’s no standardised display framework performance, and so that when luckily there’s some, then comparison tools out there that do that. But how do you know if it will be done on the same standardised basis? It’s if you go through the checklist of what you need for a multi-asset fund, KIDD, factsheet, standardised performance, SRI scores, EMT files, benchmark. There are no such requirements. So when we design MPS resolutions to be built and manufactured by our portfolio management. And actually, when we design the solutions be manufactured by our DFM clients, we try and make it kind of funds-like in structure. We have to be make sure there’s a clear objective. We make sure there’s a clear investable benchmark. We make sure there’s clear definition of description of risk. We make sure that fees and charges are fully disclosed as at the moment fee and the underlying OCFs and make sure performance calculations done on the industry standard bed spaces which tends to be no IM fee but net votes, yeah. Which you could argue to the cows campaign is probably not the best. But that is the industry stands for anyone who doesn’t do that. This penalising themselves. So we kind of have that checklist to make sure that when we design solution for DFM we make we try and make sure that it is as OEIC like as possible in terms of the product development and target market research and the objectives of benchmarks. So that it is espousing. You can have always like. A voluntary best practise framework. And I’m sure there’ll be other firms that are as similarly as rigorous, but I think the hard thing is, as MPS mushrooms and there’s more needs to compare, there’s more meat for standardisation.

Bella Caridade-Ferreira

Yeah, and I totally agree. The regulator is listening to this podcast and taking on what all these ideas, but I think.

Henry Cobbe

Now we get in. Now regarding the fashion statement.

Bella Caridade-Ferreira

But you’re right, you need it. It needs to be treated like an OEIC and you need transparency.

Henry Cobbe

And as those.

Bella Caridade-Ferreira

For parents and just go to just like you said, you know you can open the newspaper and look at the back of the EFT or whatever and see what how it’s performed or its assets. We need the same kind of transparency really for MPS. Yeah, you know. So, the advisers know that they are picking the right solutions for their customers.

Henry Cobbe

Yeah, I think that advisers do an extensive doing a great job on doing, you know, very detailed due diligence and that’s something we obviously help them with, something if we consulted with the advice firm. And asking different questions and we’re consulted creative, then we help them ask those questions. So you know that that piece is essential. I think there are obviously, you know, tools out there for doing like-for-like performance comparison and that’s why actually we embrace supportive of the various data vendors who have launched MPS comparison tools.

Bella Caridade-Ferreira

As you said, they’re data vendors, right?

Henry Cobbe

They’re data vendors and this is a data point that should be standard. So, if you think about fun data. Fund data is distributed via the ACD. Then resells onto other data vendors, and that’s why you know, fund daily fund price populated across all the different data vendor tools. The FE, Morningstar, Bloomberg, wherever you want to look at it. With MPS actually. Because it’s a non-standard product, it’s not a legal entity and annoying is a legal entity and MPS not, it’s a collection of funds. There isn’t that say wholesale distribution of data, so the FE MPS directory is probably the one that was most commonly used. They have all the data for most DFM providers, so that that’s great, but then you only have to be. You have to be inside the FE ecosystem to look at that data and look at the comparison data, and then I remember a couple of years ago the Morning star. That’s fantastic, though. Great. Brilliant. OK, well, and that’s brilliant.

Bella Caridade-Ferreira

So that costs you money, right?

Henry Cobbe

That’s the cost of doing business with, but for the providers we work with we could sell too. That costs them money, and that’s part of the cost of doing business. But you know all the name of transparency. So, I think is a good thing and I think it’s part of the kind of if I was an adviser doing DD, if you’re saying you’re not showing the data with one of these main data vendors then then why not? And so I think what’s slightly because it’s not because of the mushrooming MPS, we’re also seeing mushrooming and MPS comparisons and also the comparison with the some of them, charge advisers and the DFM’s some.

Henry Cobbe

To the advisers in terms of charges. And the really smart ones seem to be charging both. They’ve been charging both handsomely but I think the issue there is if you look at fund price data you can pretty much go anywhere you want and you get fund price data automatically when you look at an investor you get it from Hargreaves Lansdown, who’ve got their days straight off or whoever it is. If you’re morning. So ii, I think they get it from Morningstar their data vendor. They’re very standardised. The FT, newspaper prices, powered by Morningstar. So, everyone’s getting their data from somewhere. But I think with the MPS directory stuff, it’s like it’s different places, so you’ve got FE are doing it. Morningstar are doing it. I think now arc, I’ve looked at MPS providers and there’s there’s a few and my issue is.

Bella Caridade-Ferreira

And there’s a few.

Henry Cobbe

The MPS provider is providing that data, they’re not providing time series, they’re not providing NAV like a fund. Yeah, right. So, there’s not single ones. They’re providing us a weight, weightings file. And then is up for the data vendor to cap it performance using that waiting file and it may be that for the same waiting file that you provide to two different data vendors calculator they can have a slightly different one might take yesterday’s closing price, one might today’s, one might treat the rebalancing like it happened that on the same day might assume it happened. There’s also little tweaks to their internal calculation processes, which means that the same waiting file of the same theoretical rebalance date provided to each different data vendor could result in a marginally different performance track report. Based on whether you look at it on FE or Morningstar or whoever.

Bella Caridade-Ferreira

Or any of the others.

Henry Cobbe

Any of the others, and so MPS voters can’t therefore vouch that data because they, they might say, well we calculate it like this and we got that number and he’s calculated that they got that number and also got slightly methodology calculates that and they got that number. All three numbers are correct because all three different bodies where they become but there’s no single source of.

Bella Caridade-Ferreira

So basically, where exactly? They’re doing it.

Henry Cobbe

Truth.

Bella Caridade-Ferreira

Right. So that’s there’s no single source of truth and that’s really what we need the regulators to do right.

Henry Cobbe

They can’t, because unless you basically you NAV-ify MPS solutions and they have to have basically in the index and have a starting value of 100. They have to publish a midday value like. Like fund does, a midday 12:00 PM. What is the theoretical NAV? I mean, that’s the only way you could get to a single standardised, which I think that’s kind of complex.

Bella Caridade-Ferreira

So what’s the answer then?

Henry Cobbe

What we decide to do is just concentrate on the largest data vendors in terms of supplying we supply waiting. We have our own calculation engine because we’ve got own fractions where we can, we can power own factory for the DFM client to work with so we can power that. But then equally then people say well, you know you’re calculating it, we’re going to hit on third-party. So, we concentrate on the main data.

Bella Caridade-Ferreira

That’s right. OK. I mean the regulator still has a role in saying we should be standardising this is what the data you should be providing. Yeah. Providing this is a standardised framework that we wanted to operate to. There should be factsheets, performance etcetera. So yeah, so the regulator has a role in defining.

Henry Cobbe

Yes, there should be. There should be. For example, it should be standard way of happening. How is performance struggle, factsheets, new industry standard is gross of implies net base.

Now level hated, that is the industry standard. Force everyone onto a new standard, or except that is the standard. But let’s get all the factory performance disposed, what it’s running in fact, being on the same calculation basis so that it’s more comparable. I think the other thing is, yeah, that need to slow in terms of like what information holdings lists like people are target waiting files standardised and then that would be useful to know on what calculation basis data vendors are calculating performance time series of an MPS. And then that’s they like that be a sort of sub-working group. But that it is one could get towards it. Yeah, but you’re not going to have an MPS price in the newspaper because as I said, there’s no NAV. But I think what you do want to do is whereby I think advisers need to have confidence in the data vendors that they use who are reporting MPS performance, are reporting in a true, accurate, fair and not misleading way.

Henry Cobbe

And I think we’re already there. But it’s just. How do you get things more standardised?

Bella Caridade-Ferreira

If we do standardise this and do all of this so you know, are there any known unknowns or unknown knowns or whatever, is there anything that could emerge from this that we should be thinking about, that the regulators should be thinking about?

Henry Cobbe

Yeah, I think there’s a caveat, you know, to be not advocating one of the flexibilities, one of the flexibilities of MPS is it, it’s not a unitized fund. It doesn’t have concentration limits. And like if you think about use, it’s always you’ve got. Concentration limits whereas MPS doesn’t have concentration and that’s good because. You know. You wanted to be. A 60/40 fund you could in theory do with two funds, 6% in the global Equity tracker fund or fund. And I think, yeah, you don’t want to go down the road where there’s concentration is because actually convenience of MPS you can actually build a very diversified look through portfolio with tends to be between 12 to 20 funds. Hyper model thing, I think that would be a rather than helpful for you to export because there’s long as it’s sufficient asset class, it shouldn’t really about the concentration of it. We tend to find advisers like to see about of 10% maximum in any one fund. But there’s more psychological than investment wise because you know, fund saying as good as those underlying assets, if you got 2 say FTSE100 Funds, 10% in each. If the other one says the FTSE, there’s really no difference between the two funds. So, we see that as a psychological thing rather than a solution because yes. They will say well, if stretching, but then actually if the other securities are just 100 shares in the FTSE100.

What’s the issue? There is a small cap fund. Maybe it’s a different boards, esoteric or charitable or the liquid. Then obviously those concentrations are much, much, much more important. But with index funds are relevant, yeah.

Bella Caridade-Ferreira

One of the things that we that I wanted to ask about is about risk profiling for MPS.

Henry Cobbe

Is this your favourite topic or mine?

Bella Caridade-Ferreira

So, you know, let’s Talk about how you would risk profiling.

Henry Cobbe

So, look, I think so we are big fans of giving everything an empty allocation label because I really don’t like these emotional labels. I don’t like my personal bugbear. I’ve banged on about for a few years, but I don’t like the idea of like, ohh, cautious ohh I’m I’m hesitant. I’m confident on Fridays but you know and then hungover on Mondays.

And you know, it’s these psychological emotional labels are totally taking us because let’s take a 60% equity portfolio, could be cautious for a 20-year-old, but it’s aggressive for a 90-year-old. So, it’s they’re not helpful these languages, what really drives investment outcomes is return on investment and that is a function of risk.

Bella Caridade-Ferreira

Yeah, absolutely.

Henry Cobbe

And therefore, the best shorthand for risk return. Effective is sensitivity allocation, so you know.

Bella Caridade-Ferreira

So should just be 10, 20, 30, 40, 50, 60, 70, 80, 90, 100.

Henry Cobbe

That’s a handy with descriptor, I think. Hats off to Vanguard and the life strategy. You know what’s in the tin? It’s either 20, 40, 60, 80 or 100 and that’s something that we absolutely think it’s. It’s great. And we have emulated that. So every portfolio we like to always have an equity percentage.

Bella Caridade-Ferreira

Yeah.

Henry Cobbe

I think a bit like it’s like the amount of alcohol you get in the beer. So if you have you know, if you have 0 alcohol lager, it has zero. Yeah. If it has 5%, you know the. You know, you know the risk and. All you have. Special brew. Again, you know the.

Bella Caridade-Ferreira

How much is a special brew?

Henry Cobbe

But you know, but you know you. Know what you’re getting. There’s transparency, you just know you know what the risks are. You know what the rewards are, and therefore there’s clarity. Whereas if it’s like someone said that supports beer, this is the adventurous, adventurous beer. Do you mean taste, or do you mean alcohol content?

Bella Caridade-Ferreira

Ohh, that’s hilarious. I love the comparisons of it’s like, you know, this is a cautious, but you’re right. They could be 5%, could be adventurous for a kid, right?

Henry Cobbe

Yeah, yeah, if it’s a beer with like the some liquorice flavour and raspberry that could be adventurous but still be 3%. If I’m a food safety regulator, I want to know what the alcohol content is. Yeah, if I’m a financial products regular, I’ll know what the content is and the issue we have is the as most of the European thing that SRI scores they have a design or in that you know they base it on what we call static volatility band. So you have a static volatile band on a five year look back, but as we all know, volatility is dynamic, volatility fluctuates. So, we saw this in the gilt market. In theory the SRI score was what it was free because obviously Brown was taking percent but then suddenly he wanted he moved to whatever was 15%. Yeah, suddenly the SRI became a four. So volatility fluctuates. Most funds in the market are SRI four. So how do you differentiate? What’s the point you you’ll struggle. To find anything with a seven which is volatility of 25% and you won’t find anything. With a one, which is volatile less than half.

Bella Caridade-Ferreira

So like we just, we just grouped everything, everything clusters in and you know.

Henry Cobbe

It’s one big mismatch. There’s one big mismatch. So, I mean I think as we could improve on that, I think we’re not bound by this anymore, but we. And what’s interesting, the SPR rates. Was the regulator? Mental standards? Reported FRC. They’ve embraced the equity allocation and they’ve done four volatility bands, which are wider, which made more sense. But again, is a misalignment. What the SCA are doing by ESMA, the ESMA and what the FSC are doing with their own mythology, there’s room for improvement on both and standardisation. I’ve got their mics in front of me. A bit like this wedding, you know? Is it weddings where we were saying something like they have at the moment they’re saying a few things. If you look at the IA sectors, one of the frustrations there which I’ve had since 2012, literally I started on this journey was they have what’s called overlapping extra allocation ranges. So, if a fund isn’t, it can be a 60/80 fund for me in 20/60 to 85 and it can also be in inflexible. The only thing is not in zero to 35. So how does that help me? It doesn’t help me at all. So if you can have IA sectors.

Bella Caridade-Ferreira

The 40/80.

Henry Cobbe

In my view, they should be. The street non overlapping band so like 0-40, 41-60 so 61-80.

Bella Caridade-Ferreira

Yeah, yeah.

Henry Cobbe

And 81-100.

Bella Caridade-Ferreira

So hopefully the Investment Association is listening to this.

Henry Cobbe

I still need to join that. If they have me now. But I think cause because they and those mixed assets again. They’re just too mushy. They’re too. They’re too bored. So having clearly. Defined sectors helps. Is that where you? Can see what you’re playing against. And whether you look at about relative exhibit listening translate roughly to relative risk and we believe we call this relative risk approach whereby global, which is actually what FE does there when they have FE risk of 100, they’re saying 100 is the volatility of the FTSE100 and if something’s 50, that means the 50% of the fall of the FTSE100 and we call that a relative risk framework and we actually I think that’s very good. I just don’t know somebody uses FTSE100, we used global equities but.

Bella Caridade-Ferreira

Yeah, that’s yeah.

Henry Cobbe

Yeah. So yeah, relative risk framework from all.

Bella Caridade-Ferreira

Over that totally if you’re listening to that as well.

Henry Cobbe

So yeah, we live in relative risk framework and a kind of percent equity allocation translates. To relative risk. Framework and then a bit like coming about Special Group. You know exactly what you’re.

Bella Caridade-Ferreira

Right, you heard it here. Special brew or a Saints Beer 0. Right. Let’s move on to the next one. And that was I think you talked about. Ohh in-house funds. That was your 4 topics for the regulator. We started off with the MPS review in House funds so. A lot of MPS providers use their own products inside their ones years ago. That would have been considered like a really bad thing to do. But if the funds are properly managed, etcetera, there’s no reason why you can’t do it keeps. Costs down. Put me through your thinking.

Henry Cobbe

So I think first of all, yeah, on the history side, you’re you’re right. If you go back to twenty, 12/13/14 to the immediate post RDR, there was a lot of poor practise. That’s where both basically kind of, you know, advisers to set up their own sort of distributed funds and that somehow seems to be the best thing for actually all their client base level into that. And today the regular level is different was about new good, good and better practise when it comes to funds and these those have evolved and that should be replaced by other kind of more, go to refer to times, but I think the in principle in House funds, there’s some commentary I saw on one of the trade press that were saying ohh that that’s a bad thing. You universally bad and we didn’t see like that we see black and white we see there’s examples of good practise bad practise that ugly practise so doing good, bad and ugly and and if you think about it there’s a spectrum so some. MPS providers in fact build their MPS entirely within in-house funds. That’s not seen as a bad thing. It’s done. It means it’s good value for money and the overall OCF is. Reasonable. And then actually there’s a lot to be said for it, because actually you’ve got much more access to asset classes within a week than you have on cross platforms and trading assets across platforms, multiple platforms especially for harmonisation, some of the work done with the larger national firms, we talked to them about like, look, this is why you makes sense to have some of your own in-house funds because actually logging on, let’s say you’re running. Let’s see running 15 models. You’ve got fibrous profiles, free ranges about 15 models, let’s say running 15 models, each with 20 funds. Let’s say you’re 15 models and each and 20 funds on 20 platforms, like the potential for like error. Bigger and bigger and bigger, so having a unified solution which in stitch onto any platform and have all the training inside that fund is super convenient, super handy. And that that’s why we advocate the national firms we consult to, we advocate for them to do exactly that for that reason but.

Bella Caridade-Ferreira

The keyword is value for money first.

Henry Cobbe

It’s all about value for money.

Bella Caridade-Ferreira

For you it you know, as long as the fund delivers performance wise or comparative to. The to yeah.

Henry Cobbe

If it’s doing what it says on the tin and it and it and it offers good value and it’s and it’s fairly priced for what it is.

Henry Cobbe

Then I see. Absolutely no problem. It’s an operational improvement for MPS. It’s a good thing. I think that you know there are there are there are there are instances where you think that’s quite punching, you know that is what it is.

I think where? MPS I think it’s like saying like if you if. If you’re using. 100%, You know house funds and you are earning. You know decent amount of fees on those in House funds and the OCF are still reasonable and advisers are happy with it and it’s good for clients, fantastic. But those examples of zero MPS fee and all through the OCF. And we, we know somebody does that. You know that’s fine I think where.

Bella Caridade-Ferreira

It goes clever as.

Henry Cobbe

Well, really it’s clever. It makes such a sense.

Bella Caridade-Ferreira

It’s that’s very clever to do.

Henry Cobbe

That, but where I think it gets harder is when you’re charging a chunky fee on the MPS. And a fairly chunky fee inside the funds, you know I think that’s where it gets a little. Bit more blurry and

Bella Caridade-Ferreira

That’s probably where. The regulator is going to. You know, focused, you know. The layering, of course.

Henry Cobbe

Yeah, and that’s, but that’s also where it’s kind of it’s about disclosure I think and also making sure it is, it’s clear transparent. So, one of the firms we were helping one of the national firms we were helping build out their yes solution we have we suggested as they did in migration from MPS, IM fees plus third-party funds. For two. MPS, with in-house funds, we suggest reducing the MPS fee down to what policy fee. So that was, you know, cause you still have to log in. You still you still risk as an MPS operator, you still have two people log on platforms and make switches, but then it’s about what’s fair value and what’s abortions. And so yeah, I think that’s an interesting area. Again, it’s not as simple as some communities say we’re saying or you have funds about down within our funds or others saying that the best inside spread let’s only use those. There’s a spectrum and I think that’s actually good, bad and ugly or good. OK, if I think the, the, the ugly bit in these focus.

Bella Caridade-Ferreira

No, nothing. And of course, you know the overall fee of the MPS house include the fee, the fund fees itself. So that and that comes back to disclosure.

Henry Cobbe

Absolutely. Yeah. See. Comes back to disclosure. Or you. Yeah, you say that comes up the MPS. Actually, you said this the amp this the OCF and these are holding but if you know and that’s where.

Bella Caridade-Ferreira

Do you want to just clarify for the audience what you mean by IM fee, investment management fee?

Henry Cobbe

Yeah. So we are trying to stand. There’s so much jargon as you know, in this industry we’re trying to standardise terms like say in America. The so MPS fee for you, it’s the discretionary investment management fee for running the MPS. So not the platform for you, not the fund OCF, not the advice fee, just the investment manager fee. We call that the IM fee or investment fee or the portfolio management fee in America, it’s called the Oval. So yes, but we’re trying to move towards a world where anything to do with portfolios uses the word portfolios and anything to do with the word funds use the word funds. You may think that sounds obvious. You know if you think about whenever people MPS, they’re DFM. The discretionary fund manager or they’re not running a fund, they’re in a portfolio. They should be called a discussion portfolio. Only one publication calls about discussion investments  managers or dims and that.

Bella Caridade-Ferreira

Well. Yeah, Transact call them DIMs.

Henry Cobbe

Yeah, I didn’t like. Why didn’t I? Like that term, I’m not happy with.

Bella Caridade-Ferreira

Well, this is dim.

Henry Cobbe

That person I don’t like. Called him so I don’t. We called him.

Bella Caridade-Ferreira

Discretionary investment manager.

Henry Cobbe

DPM that’s what we call it.

Bella Caridade-Ferreira

So I think the regulator should be listening to. We think it should be called a discretionary portfolio manager.

Henry Cobbe

Running discussion portfolio that and that’s and model based as well and actually that’s the other hierarchy of terms. Which have clarified. People talk about persuade versus custom. So because, oh, is it a bespoke model to be try and say that bespoke means bespoke to an individual client, just like to get the spoke suit made? Not that I have still waiting for that.

Bella Caridade-Ferreira

I’m sure you can afford it right now.

Henry Cobbe

Not only no, because it’s about utility get just as good off the shelf though, isn’t it? And so we see this both as in.

Bella Caridade-Ferreira

Sure.

Henry Cobbe

Client we see customers being a generic for a large group of target market like an advised firm might have custom model mandates and then ready-made mainly kind of the ready-made the stuff that is there the mainstream stuff so that’s what we’re trying to do. So we were and then people suddenly were tailored but we so for our custody thing.

Bella Caridade-Ferreira

Customers tailored right.

Henry Cobbe

Yeah, but I put. Custom tailor could be confused with the spoke. Certainly the trading industry. In the distance.

Bella Caridade-Ferreira

That’s true. Yes. Yeah.

Henry Cobbe

So which I’ll say bespoke is.

Bella Caridade-Ferreira

Again. So I think the regulator should be listening, but Nope.

Henry Cobbe

It’s the DFM. Ohh DPM.

Bella Caridade-Ferreira

Well, that’s the point, isn’t it? But we, you know, we need to set. We need to sort of set the language, standardise the language.

Henry Cobbe

Yeah, cause a lot of even a lot of advisers say, oh, you know, they’re running a Fund, there’s this you. Go. Oh, is it a fund? They’re like, no, it’s a fund. I think there’s a fund. Is it does have an ISIS. Is it wrapped? No, it’s not wrapped it does it. So there’s a portfolio and it and it. And it sounds silly but but it just it would it sounds silly to be.

Bella Caridade-Ferreira

It’s so it’s not fun there.

Henry Cobbe

Picky about the semantics, but actually would help. Verify is it a port for you? Is it fund? Is it a bird? Is. It a plane, no?

Bella Caridade-Ferreira

Also Henry. I mean, if the adviser or the firm doesn’t know what they’re talking about, you know? God help them. They’re talking to clients, you know.

Henry Cobbe

Well, just language. There’s again, there’s no mandatory language of how to describe things, and the way that’s good for creativity. But it does mean if people get confused, what I hear models often means funds. Yeah. And then and then and then you have to say, does have an ISIN and do anything with an individual ISIN is, in my view of fund anything without an ISIN is a portfolio. And if you’re a fund manager is because you’re doing a fund which is nice in your model for the manager to running portfolio, which is a collection of funds and licence. So anyway, this is just trying to straighten out. All these windfalls in the industry.

Bella Caridade-Ferreira

No, no. So it’s good point. And look you mentioned custom.

Henry Cobbe

Yes, yes, that’s our speciality. That’s the bulk of what we do.

Bella Caridade-Ferreira

As your speciality which brings me. On to the next your third point which is on co- manufacturing because you know that’s a nice little segway there.

Bella Caridade-Ferreira

If an advice firm says I want to tailor the MPS specifically for customised, sorry, not tailor sorry. Customised my MPS because all my clients are very green etcetera.

Henry Cobbe

Customise

Bella Caridade-Ferreira

That takes them into the code manufacturing world, isn’t it?

Henry Cobbe

Yeah, there’s nothing and I want to write an article going. Who’s afraid of being a manufacturer? Like there’s nothing wrong being manufacturer. There’s one requirement on being a manufacturer which is never a document that is being placed with the manufacturer. That’s that’s the requirement.

Bella Caridade-Ferreira

That’s it.

Henry Cobbe

That’s it.

Bella Caridade-Ferreira

There’s no reporting requirements.

Henry Cobbe

It’s OK manufacturer and there’s no documents. The only thing if you look at the Prob rules. Their only obligation, the manufacturers have a documented agreement in place with the, with the manufacturer setting out bluntly who does what and whether you are manufacturer or not, in a way to do the degree of involvement. So, you know if someone just sort of white labelling portfolio that’s probably not the manufacturing because you know the advice got no say yes on the actual. Structure, design, objectives, fund holdings, concentration, whatever the application frameworks. Yeah. So we see ready made as being.

Bella Caridade-Ferreira

They’re just white labelling it, so that’s not really code.

Henry Cobbe

Clearly manufactured label is manufactured. The only thing with white labelling. This has to be clear, disclose about who’s doing what. So, advisers can’t hold out, but it’s. They’re running the money and vice versus everyone’s. Everyone’s clear about who does what. So that’s and then. And then came my branches like, yeah. The more involved the adviseries or any other part of the research. Is and then then it just means they have documentation outlining who does what and actually the way we see it is a bit like it is actually documented in. In a in a in a investment policy document. So. So, yeah, care manufacturing is there’s there’s nothing wrong with it. It’s actually.

Bella Caridade-Ferreira

And that does that allow them to share the fees as well?

Henry Cobbe

A good thing?

Henry Cobbe

Now that’s where I feel that’s like not so good. Yeah, because if you hit five in the face of RDR. Yeah, and it flies in the in the face of this human duty. And I think, you know that. And they think post-consumer duty, the arrangements that you’ve seen the, the one that I when it gets sticky then I get worried. So, there are I hear are reports whereby firms say I’m DPM saying on JV’s with advisers. That JV becomes the DPM for portfolio. And then that way they both earn fees out of the deep. Yeah, all the DBM, the investment is bringing all their vessels have skills. Advise bringing the. Clients and the JV growth and value and they own 50/50 each and then one has an option to buy the other. And I think the problem is with that is that you know if you’re the adviser and you well the reason get fed up with investment management, they’re doing a bad job. How do you find them out of your own? And so you basically become a captive and so that revenue share model, we think it’s not right even whether it’s through JV through contractual the advice, but it’s just shouldn’t be allowed anyway, because no adviser should be taking any fee from an investment product. Through any DFM paying money to an advice firm that just flies in the face of RDR, it shouldn’t be happening, and I hope it isn’t. I think actually there’s some article from one of the MPS providers great about that saying, oh, we could. Do this, and they’re rightly slated in all the comments section. Like what are you thinking like so that I mean that that no. So, the way that DFM’s are structuring this as they are doing JV’s and we think is we think it’s great for the DFM, I mean awesome. Brilliant. Hello. Hi. Let’s have a JV.

Bella Caridade-Ferreira

Yeah.

Henry Cobbe

You bring the clients, I bring my models. Yeah. And then we said, well, I I get 50%, I get 50% on the uplift on your client assets it’s. Mad. I mean, if I if I was adviser. Why would I? Give away value like that. I just don’t get it. The other model is obviously DFM taking a minority stake in advisers, and the other kind of wink-wink nudge-nudge understanding they’re going to use their DFM services, and there can be case that you’re part of a large group or then that’s on the panel, whatever it is.

But again, we were one of the earliest firms to kind of design this whole custom framework and the idea that. I brought to the market was like what we saw workplace pensions, so workplace pensions, pension schemes have a couples called custom mandate. If you’re a trustee, your pension scheme you say are the cohort of our membership is this demographic. Therefore, we need an investment strategy aligned to that cohort and then the investment management design strategy there is a line to the demographic age and the income levels and the future liabilities of that cohort. That’s how pension scheme strategy design and when prod came out. I thought in the way it says oh, you know investors should be aligned the target market with the adviser firm. Thought no way. Substitute the word co-demographic or cohort for target markets. Yeah, substitute trustee board for Adviser with adviser board. Yeah. And substitute the word member for end investor. And actually it’s the same thing. So, the idea was that in a way adviser have a quality production role in thinking about what is good for my target market that’s built in for my target market, their life needs characters and objectives, which language and prod. So when we pioneered custom back in 2018 when Prod came out, we thought we would have a framework by the investment managers to build a strategy to order customised to an investment for an adviser firm for its needs, characters of its target markets, and then the investment, the adviser firm, we call it a mandate, has a mandate and then the manager runs it to that mandate, whatever it might be, it might be, we want something that’s five risk profiles. These applications were 20% UK bias or no bias or 40% bias or might be going to build active fund or not fund or whatever the spec is. But the most important thing is, the adviser, if they think you’re doing a bad job in not delivering the objectives, you’re fired. And I put this mandate out to tender and say who else would like to run this mandate now.

Bella Caridade-Ferreira

Absolutely.

Henry Cobbe

But by buying the adviser firm well, the Good people advice for you what the advice firm but by basically can in one way you can how having them captive because you got a minority stake or cause an expectation or because you got a JV, it’s a bit like the pension scheme being bought by the investment manager. So you’ve got to be able to fire them and we say that going into pictures, it’s not always that you said please not, not too soon, but. If we don’t deliver what we say we’re going to do in line with the objective we set ourselves. And we and never mind what the comparisons are doing because that that’s like someone else is knitting. Don’t compare me against them over there. You got a totally different objective risk framework. Compare me against my objectives what I said we’re going to do. If we don’t deliver, then fire us. Wait, an hour of it, not.

Bella Caridade-Ferreira

Too soon. Not too soon. Give. Him a bit of.

Henry Cobbe

Time. So any structure whereby the adviser? Can’t fire the DFM on behalf of the client. I think it’s structurally problematic.

Bella Caridade-Ferreira

I totally agree and. I think this will come out when the regulator does it’s consolidators review because obviously that’s a big impact of advice consolidation.

Henry Cobbe

It’s different if it’s consolidated. If you are a national adviser and you have your own investment management business and that is your operating model and that is what you say to the clients that you are, we are going to recommend you one of these investor solutions offered by our in-house firm, which is called X and this is the journey. Do you want to go ahead with that journey? Sign here. Yeah, that’s what you’ve explained to them. And that that is what is, you know, for the national firms, our clients listening. We think that’s great. You know that that makes total sense because you’re not implying to your client.

Bella Caridade-Ferreira

Being transparent and not.

Henry Cobbe

This is your financial planning, is the finance planning fee this investment options. This is all for an in-house manager we do. A great job with these ways. Two, which model you like? We can recommend this one off you. That but you’re. But where is conflicted is where someone saying I’m independent but they’re actually restricted and either restricted contractually or restricted in name only. But they’re holding out saying, oh, we’ll try with a better view and actually we’re going to use this for everything we do. And so yeah.

Bella Caridade-Ferreira

And then then then another. Yeah.

Henry Cobbe

That that’s the that’s the interesting tension. So, we’re not against adversity integrated models. We can understand why that what but what we are against is whereby advisers are maintaining their independence, but they’re actually trapped, lured into a trap relationship. Because I think that there’s a very asymmetric level of information sharing there but advisers think, oh well, we can’t do this stuff in house, so we’ll get these guys to do it for us. We’ll both benefit on the upside because we sit adviser. You can do this now actually you can control, you can retain control of the commercials.

Bella Caridade-Ferreira

And be able to sack your MPS and replace them with.

Henry Cobbe

Yes.

Bella Caridade-Ferreira

Someone else who doesn’t do it so.

Henry Cobbe

Yeah, so wesee advisers better off actually vote on their financial planning to making sure that’s benchmarked to what market rates are and whatever they should charge their client is agree with their clients whatever the investment management fee is for that mandate is the investment management fee on a date and there’s no crossover between the two. So you’ve got the flexibility to be able to hire and fire it for different.

Henry Cobbe

Desegregated everyone knows where they stand. There’s no blurry.

Bella Caridade-Ferreira

Blurry. Good. Good stuff, right? That brings us to the final point about greenwashing. Or anti-greenwashing earlier you did talked about SDR and stuff like that so. How do we make sure that investors are green and how green MPS is?

Henry Cobbe

Well, I I think first of all, there’s a little like alphabet soup isn’t there because like you know, there’s ethical, there’s ESG, there’s like, you know, it’s sustainable, there’s environmental, there’s, there’s lots of love, lovely words and it’s not quite clear what they all mean. And because that was a proliferating in the funds.

Henry Cobbe

Well that’s why the essay in the credits then first, you were going to do so in Europe pioneered this SDR framework, same as the display requirements, whereby anything you say has been backed up, evidence has been evidence and transparent and disposable. And you can’t just say it’s got to be it and so they come up, they’re labelling system. The different for SDR labels and then the funds world had to kind of step into line with that and that caused with a few, not eruptions, but few little shifts, because suddenly UK funds, if they’re marketed as if they’re using the term sustainable which is now protected terms. So, it’s stable as like a word that if you use this, the S word the same in the world, then you got to back it up. And so then a lot of UK funds like have to tweak their names.

Bella Caridade-Ferreira

What I’m going to say all is.

Henry Cobbe

And then.

Bella Caridade-Ferreira

What you mean remove the more sustainable?

Henry Cobbe

Well, unless they wanted to go into the SDR regime and equally what we saw also we saw like quite a little fun that she just, like shut down the. UK and then. We were be shifted across Luxembourg and like, like climate, climate solution funds, they’re like, oh, well, OK, that sort of us maybe kept we do, let’s just we launch that and you know they want to distribute it across all of Europe, obviously it makes sense that. What I’m saying, if forced a few shifted like either we have to fit into this new SDR regime for one out of their have 20 markets in Europe, we will operate in or we just relocate our front of Luxembourg. And use the SFDR European rules and then we’ll passport it into UK and we weren’t used table word. Otherwise we have to be any fund marketed to matter.

Bella Caridade-Ferreira

If it says climate action, can they pass force it into. The UK, yeah, yeah.

Henry Cobbe

Yeah, because it’s a Luxembourg fund. It’s under the SFDR. Whatever article it is and they’re not using the S word, and therefore it doesn’t have to fall into the UK SDR regime, right? But if you’re a UK fund, you probably it’s UK domicile, you probably might is it doesn’t.

Bella Caridade-Ferreira

Matter what’s not?

Henry Cobbe

It’s not a domicile thing. It’s not a domicile thing. It’s not where? You find docile. It’s perhaps describe the market. And if it’s using the S word, sustainable word, then it has to fit in the UK FDR regime, so any European domiciled funds being marketed there into the UK, if they’re using the word sustainable they have to get the SDR badge.

Bella Caridade-Ferreira

Use the words saying they have to.

Henry Cobbe

They’re marketed in the UK. Yeah. So that way any UK consumer who’s been marketed too by these very fun houses, if they know this word sustainable, it’s got an SDR badge on it, they know what’s inside and they know it complies with that regime. So it’s a kind of market basically kind mark. And I think it’s a good thing. But I think what happened to start with is. Obviously there are very few SDR funds. So like how the supply to DFMs? And everyone thought, how has that been difficult and so we can have obviously. We build, we design and custom mandates for adviser firms who want we call ESG social portfolios ESG for now.

Henry Cobbe

What STD portfolio is and we’re like how how all this evolved with reading what we could turn it all upside down and change it around. Well, let’s just wait for regulatory clarity. So there’s a consultation paper which said, oh, maybe we’ll have to have a minimum threshold and then a lot of people said actually, there aren’t enough funds to reach out and including us. We like. There are enough funds reach in the threshold. So how do you mean the threshold when there are some funds to meet them in the threshold with OK, well, maybe we’ll lower than threshold.

Henry Cobbe

I was like, well, that’s the set my direction. Again, there’s not enough funds to do this. They say. OK, well, let’s look at this in December and actually, no, this is in. April, but actually. You know what? Let’s well listen to the MPS review so we don’t actually have any regulatory guides as MPS guides have any MPS legs. We guide to operate under. So we kind of think it common sense approach makes sense. But I think at the moment. There is a bit of a. Whistle when washing because you’ve got. You’ve got. All these portfolios MPS portfolios out there called ethical impact, sustainable, maybe not sustainable, but definitely ESG definitely impact definitely social, definitely responsible, there’s always like buzzwords out there. And you just got no idea what’s actually inside inside them, to what extent, if at all, they comply. They didn’t have to comply the theologies NFL’s don’t provide STL, they’re not funds. Yeah, their portfolios.

Bella Caridade-Ferreira

Yeah. So that’s another message for the regulator.

Henry Cobbe

Yeah.

Henry Cobbe

Well, if it’s possible to do so, that’s an open book. So I think at the moment there is, you know, on the last we’ve done there, there is that risk of again, blurriness where it might be called ethical responsible. You look inside what’s inside there going ohh, that’s like doesn’t really. There’ll be some things that do and a lot of funds until that before that, don’t. And that comes you didn’t point for advisers again and that’s what we’re kind of hoping to help the adviser home workout with the FP workout space. Now so.

Bella Caridade-Ferreira

What’s the cover so for the MPS review do we have any idea of when the FCA is going to do this?

Henry Cobbe

Well I think it’s more gathering stage. But I think that’s more like technical data, it’s not like thematic or and I think I think what would be I think will be quite interesting actually to speak to be to actually speak to someone advised to speak some MPS providers like, these are my own personal views. But actually other advisers might have similar views or different views. Other and MPS might some view so that will have consultation throw their views into the ring but I think.

Bella Caridade-Ferreira

It’s going to be it’s. Going to be off before we say. Any kind of?

Henry Cobbe

These things usually take a couple of years, definitely, so it would be about a year of this consultation and getting all inputs and then the year of quantitating over the year of findings that I think what we want to do is that as you know, co-manufacturing compacting also.

Consulting is a personal contracture. We actually that’s exactly. What we designed stuff for to be built by DFMs. And we designed stuff we built by fund houses, so pure manufacturing is literally bread and butter. But I think what’s interesting is I think we’re going to see what So what we’re encouraging our clients to do, I be advise firms to be investment managers to be at funding houses to basically espouse best practise in advance. As we see it and that way you’re aligned to the potential director of travel. So as essential relates with MPS, that means you having a clear KIDD, having a clear factsheet, actually having a good bunch more.

Bella Caridade-Ferreira

You’re basically future-proofing.

Henry Cobbe

We, that’s what we intend to do. Yeah. Because that way, you know, it’s just.

Bella Caridade-Ferreira

It’s the direction of travel.

Henry Cobbe

Well, I think that’s what the governmental. Travel should say yeah so. Just because you don’t have to do it doesn’t mean you. Shouldn’t do it, so we kind of volunteers.

Bella Caridade-Ferreira

This is the practise to do it. I mean it’s discipline.

Henry Cobbe

Will be good again on what on? What standards and what basis? So, with that something that we can running out to RDR clients and to anticipate? This thing, this kind of setup kind of try and set a second voluntary standard.

Bella Caridade-Ferreira

Well, yeah. Well, you heard it all from Henry Cobbe. He’s creating and setting a voluntary standard for a fellow for his fellow MPS providers and designers, asset allocators, et cetera, to consider. It’s been lovely talking to you, Henry. I’ve learned loads and it’s always entertaining. I want to know. Well, let’s go and have lunch. So I want to know more about the bespoke suits that you haven’t bought yet.

Henry Cobbe

No, no. All I’ve been told is there’s a very good tailor in Yorkshire, apparently, who make the same suits that you buy in Savile Row boat. So you think savoury suit is actually made in Yorkshire? Yeah, but I think that’s a good metaphor. I don’t know what it’s a metaphor for.

Bella Caridade-Ferreira

We’ll think of something, but anyway, thank you very much Henry and we hope you’ve enjoyed listening to this podcast.

Henry Cobbe

Thank you, Bella.