Adviser investment distribution becomes winner takes most

Financial advisers are rapidly narrowing the range of investment strategies they recommend to clients, effectively turning investment distribution into a concentrated market where only a few players dominate. According to new research from Platforum, advisers are outsourcing more of their work to investment managers as they seek greater efficiency and compliance.

A Shift in Market Structure

This concentration of decision-making represents one of the most significant changes in the advice sector over the last five years. The drivers are mostly practical, though. They include the need for efficiency, regulatory pressure from the Consumer Duty, and a sharper focus on financial planning.

This trend partly reflects the changing structure of the advice market itself. Consolidation has created larger advice firms that control a growing share of advised assets. This replaces a fragmented market where individual advisers had much more freedom to make their own investment decisions. As the market consolidates, investment selection has become concentrated in the hands of a smaller number of central decision-makers.

Fewer Strategies, More Outsourcing

A clear sign of this shift is the growing simplicity of many firms’ investment propositions. Advisers have been gradually reducing the range of strategies they recommend in their centralized investment propositions. Instead of offering a broad menu of options, advisers increasingly select from a few core solutions, such as third-party model portfolios or multi-asset funds.

The data shows that 41% of advisers now use a single investment strategy to underpin their core investment proposition. This figure has risen sharply compared with just 25% in 2021. The upside of this simplification is operational efficiency and strengthened oversight, which makes it easier to demonstrate suitability for clients.

However, it means a fast-growing share of client assets is ending up in fewer investment strategies. This has profound implications for the entire value chain, particularly for asset managers.

This consolidation creates a high barrier to entry for new or smaller fund managers. In previous cycles, a strong track record might guarantee a spot on an adviser’s list. Now, the logistical burden of onboarding a new partner often outweighs the potential benefit of a slightly better return profile. The market is moving away from a meritocracy of performance toward a hierarchy of operational compatibility.

The Rise of Model Portfolios

Discretionary models, known as MPS, have become the dominant investment strategy in the advice market. They now represent 42% of advised assets. Specifically, outsourced MPS accounts for 29% of advised assets. That is more than double the 12% recorded in 2021.

Bespoke portfolios have continued to decline during this period. Many firms now view bespoke portfolio construction as difficult to justify against the scalability, governance, and cost-efficiency of MPS. The Consumer Duty regulation has only magnified that trend, pushing firms toward standardized solutions that are easier to audit and manage.

A ‘Winner Takes Most’ Market

The concentration of portfolio management decision-making has major implications for asset managers and product providers. They now need to focus their sales and marketing efforts on fewer decision-makers and centers of influence. Larger advice firms can use their size and assets under administration to negotiate closer relationships with investment providers to secure tailored solutions and pricing.

For providers, these partnerships can unlock significant and often sticky asset flows. But with advice firms increasingly concentrating assets among a smaller number of partners, there are fewer opportunities for providers to secure a place on these panels.

Platforum notes that the distribution of funds is becoming a “winner takes most” market. In this environment, scale, credibility, pricing, operational support, and strategic alignment are at least as important as investment performance. Advisers may gain more efficiency and better governance, but as decisions concentrate into fewer hands, so do the risks for advisers and their clients.