The active advantage

The UK managed portfolio service (MPS) market has changed rapidly in recent years. As advisers look for scalable investment solutions that support consistent client outcomes and operational efficiency, MPS adoption has continued to grow.

At the same time, pressure on fees and increasing regulatory scrutiny have reshaped the market. Many providers have responded by blending active and passive investments or simplifying portfolios to reduce costs.

That has created an important question for advisers: what does active management really mean within an MPS structure?
For Rathbones, the answer starts with investment integrity. Rather than building portfolios from large collections of third-party funds, Rathbones has developed a different approach based around its Liquidity, Equity-type risk and Diversifiers (LED) framework. The structure uses three purpose-built building block portfolios that work together to create different risk-aligned strategies.

The aim is not simply to reduce costs or create another version of an existing MPS. Instead, the focus is on creating portfolios that are genuinely active, transparent and designed around client outcomes.

Rethinking portfolio construction

Traditional MPS solutions often rely on multiple external funds sitting alongside one another within a model portfolio. While this can provide diversification, it can also create overlap, reduce transparency and introduce layers of cost and complexity.

Rathbones’ approach is different. Each building block within the LED framework has a clearly defined role.

Liquidity assets focus on stability and flexibility, typically including government bonds, cash and high-quality fixed income investments.

Equity-type risk assets are designed to drive long-term growth and include global equities and other investments that tend to behave similarly to equity markets.

Diversifiers aim to behave differently from equities during periods of market stress, helping smooth returns and manage downside risk. This can include assets such as gold, structured products and specialist strategies that may not typically be available within a traditional MPS structure.

This framework allows portfolios to be constructed in a more deliberate and precise way, with each component designed to fulfil a specific purpose rather than simply increasing the number of underlying holdings.

Looking through to the underlying investments

Transparency is becoming increasingly important for advisers and clients alike.

One of the challenges within some multi-manager and fund-of-funds structures is that it can be difficult to understand exactly where risks sit within the portfolio at any given time. Overlapping exposures across multiple funds can also dilute conviction and create unintended concentrations.

By investing directly within the building block portfolios, Rathbones has full visibility of the underlying investments and can clearly explain how portfolios are positioned and why.

This approach also creates greater flexibility. Because the investment team is not limited solely to third-party funds available on platforms, it can access a broader opportunity set, including specialist areas of the market that many traditional MPS providers struggle to incorporate efficiently.

Efficiency matters too

For advisers, portfolio construction is only part of the picture. Operational efficiency increasingly matters as firms balance client expectations, regulatory responsibilities and commercial pressures. The LED structure has been designed with this in mind.

Because much of the portfolio activity takes place within the underlying building block portfolios, there is less need for large-scale rebalancing at model level. This can help reduce unnecessary trading activity, minimise time out of the market and potentially lessen capital gains tax events for clients investing outside wrappers.

The structure also avoids some of the operational friction that can occur when buying and selling multiple third-party funds across platform-based portfolios.

These may sound like small details individually, but over time they can contribute to a smoother and more efficient investment experience for both advisers and clients.

Active management through different market conditions

The debate between active and passive investing is unlikely to disappear. Passive approaches continue to play an important role for many investors, particularly where cost is the primary focus.

However, recent market conditions have also highlighted some of the challenges that can arise from relying heavily on index-driven investing. Concentration within a small number of companies, changing interest rate expectations and shifting market leadership have all reinforced the importance of diversification, risk management and portfolio flexibility.

For Rathbones, active management is not simply about trying to outperform markets. It is about understanding how different assets behave under changing conditions, maintaining oversight of risk and adapting portfolios when needed.

That philosophy sits at the centre of the LED framework and the wider Rathbones MPS proposition.

For advisers, the conversation around MPS is also evolving. Cost remains important, but increasingly it sits alongside broader considerations such as transparency, operational efficiency, consistency of outcomes and the strength of the underlying investment process.

Rathbones MPS has been designed with those priorities in mind, combining a genuinely active investment approach with a structure built to support advisers and their clients over the long term.