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Advisers question DFM fees’ value for money

Advisers are split over whether DFM fees represent good value for money with 42 per cent arguing they do not, according to a Money Marketing poll.

38 per cent of advisers believe DFM fees are good value for money, but a fifth of respondents remain unsure.

The FCA is currently looking at DFMs’ role in the value chain as part of its asset management study to see whether the extra costs to investors are justified.

Money Marketing reported in September that more advisers are looking to bring investments in-house as 11 per cent of IFAs plan to get discretionary permissions in the next five years, according to Platforum data.

Increasing competition from new entrants like direct-to-consumer platforms such as Interactive Investor are set to drive DFM fee competition. II announced in June that it was planning to introduce a DFM service following its acquisition by TD Direct.

The poll was conducted in December with over 100 readers responding.

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Well I guess it all rather depends upon what you’re receiving and what you’re paying….!!!

    • ….and of course applying for discretionary permissions doesn’t necessarily mean bringing the process ‘in house’ as many advisers are ‘in-sourcing’ the portfolio management expertise on a sub-advisory basis. This serves to drive enterprise value, improve client outcomes and reduce costs. The latter is particularly the case if fixed fees are negotiated….

  2. 100 responses doesn’t appear to be a ‘representative sample’ in order to arrive at any conclusion.

  3. Robert Milligan 2nd January 2018 at 3:23 pm

    Far to many IFA’s “THINK” they can do better, never met an honest one who could, I have used DFM’s now for eighteen years, they very much do add value and rest assured, as an IFA, after thirty years of giving investment advice, I could not do their job and Mine. Although connected you would not go to the Ear Noise and Throat Specialist rather than a gynaecologist

  4. Discretionary permissions does push an adviser into a MiFID category firm and they can no longer take advantage of Article 3 exemption, with a significant capital cost.

    Only larger firms are likely to go for this and then they may outsource at least some of it anyway.

  5. Here is a thought – What does a DFM do to warrant their fee, when 1. The adviser introduces the client to the DFM, so saving the DFM the marketing costs. 2. The adviser takes all the regulatory responsibility for the client, so saving the DFM most of the compliance costs and 3. At best the DFM only manages to produce 2nd or 3rd quartile returns compared to most unfettered model MM portfolios. 4. Most of the actual costs of a DFM are never disclosed, which adds about a further 0.9% pa to the cost.Yet most DFM’s charge more than a typical adviser firm for the service they offer and we have to disclose ALL our costs, so where exactly is the value?

  6. These MM straw polls are always misleading. Some DFMs are value for money for some clients but not for others. Some DFMs aren’t value for money for any clients. Some clients value DFM input more than others. So it can never be a straightforward yes or no answer.

    The headline is quite correct though. As advisers, we should always question whether a DFM is value for money, in the same way as monitoring whether the pension contract or other tax wrapper and the selected investment funds are value for money.

    Personally, I find that DFMs offer huge value to our decumulation clients, and not much value to other clients.

  7. The acid test of any DFM must surely be whether it consistently delivers outperformance relative to a carefully constructed and regularly reviewed model portfolio of at least twice the additional costs it imposes. But that’s very difficult to establish.

  8. For Mr Steven’s information and any other Adviser so interested, he may wish to email david.cowell@mcim.co.uk and I will send some charts confirming such out-performance over periods up to ten years.

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