Advisers fear justifying DFM fees to clients

New research suggests that one of the main conerns advisers that choose not to outsource to discretionary managers have is being able to justify the increased fees to clients.

The second part of the Rathbones and CoreData’s value of DFMs report released today says there is no “damaging effect” on advisers’ credibility if they outsource investment management.

Depsite this, two thirds of respondents believe it would be a struggle to prove their worth to clients if investments were managed externally.

Twenty-seven per cent of surveyed advisers also fear external managers will steal their clients.

Losing control of investments or the value chain (75 per cent,) and the cost of outsourcing cost (76 per cent) were also primary concerns.

On average, advisers who do use DFMs spend a quarter of their week meeting clients, according to Rathbones.

The findings show 45 per cent of those advisers conduct more meetings with clients currently than when investments were managed in-house.

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More than half (55 per cent) say client trust has increased as a result of using a DFM.

A total 97 per cent of respondents to Rathbones also say end-user clients are satisfied with the use of third parties.

Rathbones Unit Trust Management chief executive Mike Webb says DFM solutions should look to support the adviser/client relationship more  positively.

He says: “[This] will help ensure the DFM industry continues to make changes to provide suitable, tailored services and address any of the lingering fears advisers might still hold.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Roddi Vaughan-Thomas 1st November 2018 at 3:41 pm

    Outsourcing to a DFM does not have to mean losing custody of a client’s assets. The old school DFMs rely on this model, but the service i.e. making investment decisions on behalf of a client does not need the manager to hold the assets. Sure, UNHWs or those with considerable illiquid portfolios need to an ‘entire’ approach but for most clients in collectives they’re just paying for something they don’t or there advisers actually need.

  2. “Respondents believe it would be a struggle to prove their worth”

    I’m darn sure they would. How many layers of charges will a client put up with? How in all
    conscience can adviser load up the jam that far?

    If you can’t or won’t get involved with investments don’t outsource – REFER. Thgis means that there is no consideration between you and the DFM, nor do you load up the charge for what the DFM does. This way the DFM has to justify his own charges and you become what you are otherwise not – an honest broker.

  3. Roddi is correct.

    Many DFM’s nowadays are ‘DFM light’ and geared around risk rated portfolios with natural variations for income, growth, passive, active, and even ethical.

    Outsourcing to these solutions allows an adviser to do his/her day to day advisory role and shift the heavy lifting

    Before anyone responds and says that outsourcing is a dirty word, I would hazard a guess that the alternative is fund selection. As such outsourcing still takes place i.e. the fund manager is given the remit for stock selection.

    Technically the only way to avoid outsourcing altogether is to actually become a stockbroker!

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