the fca's focus on inhouse funds is sensible

Just as major supermarkets achieve better consumer value by manufacturing their own white-label goods, discretionary managers can utilize proprietary fund structures to lower institutional costs and improve execution agility. However, smaller arrangements lacking scale risk running afoul of regulatory standards on product governance and distributor-influenced rules. 

by Henry Cobbe, Head of Research, Elston Consulting

Just as large supermarkets can get better value for money by manufacturing their own breakfast biscuits (often with a contract with the same wholesale factory), so too can MPS providers do the same with inhouse funds.

​​A focus on the use of inhouse funds is something we called for in our analysis What to expect from the FCA's MPS review  in July 2025.

Done properly and professionally, there are can be a strong rationale for using own/related funds within an MPS, and many of the larger MPS providers do so with good reason.

Advantages can include: 1) agility - being able to implement asset allocation changes swiftly within a fund, that would take longer across multiple platforms; 2) access - the ability to access instruments that cannot readily be traded on platforms such as Gold ETCs, Commodities ETCs; and 3) economies of scale - access to institutional share classes of both active and index funds that are even lower cost to what is available via platforms.

Where there is potential risk is smaller managers or advisers setting up their own funds for inclusion in a MPS, which may not have sufficient AUM to achieve economies of scale.  Where advisers are involved in the design or governance of the fund, they should refer back to FCA FG12/04 on Distributor Influenced Funds.  The guidance is slightly dated, and requires a refresh, which is why this question needed to be included.

Funds are governed by the Consumer Duty as well as Product Governance obligations that require Assessment of Value reports.  The ultimate litmus if the overall cost/benefit assessment to the end investor.

Under any scenario, having a clear documented conflicts of interest policy should be standard for MPS providers and Fund Managers alike, and for those providers this question should come as no surprise.

See Henry quoted by Citywire's article on this topic