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Discretionary dilemma

John Kenchington analyses platforms’ policies on access to discretionary fund managers

Several platforms are set to widen access to discretionary fund managers in the coming months but some of the bigger players are refusing to support external DFMs.

In September, Rathbone Investment Management issued research claiming 47 per cent of IFAs are already outsourcing and 42 per cent are considering it.

Platforms including Axa Elevate, Transact and Ascentric have DFM support, including functions such as rebating a portion of fund management charges to DFMs to pay for their services and providing online facilities allowing them to carry out investment work.

Transact head of marketing Malcolm Murray says the platform now has a panel of around 14 DFM partners and that number is growing fast.

He says: “We have been doing DFMs for nine years and for most of that time there were around four or five partners. Now there are new ones every month. If advisers want to use third-party fund managers, we are perfectly happy to accommodate that.”

Novia and Nucleus are expected to widen access to DFMs in the next few months while Skandia has created DFM partnerships.

In November 2009, Skandia linked up with discretionary manager Quilter to provide outsourced DFM for IFA Jelf Financial Planning.

A spokesman says: “We believe value can be created for investors though combining the financial planning expertise of the adviser, the investment tools and processes of a platform and the investment expertise of the DFM.”

But Skandia says it sees limited demand for DFM outsourcing. It published research in July saying simply placing clients in multi-manager funds is the preferred method of outsourcing for 43 per cent of advisers surveyed.

Skandia is one of several major providers to launch a range of risk-rated, multi-manager funds in recent years.

Its Spectrum range is designed to allow IFAs to outsource clients into funds that suit their risk tolerance rather than opting for a full DFM deal.

A Skandia spokesman says: “At the moment, we work with advisers and DFMs to implement specific arrangements for them but if demand grows significantly, we will naturally consider making the functionality widely available.”

FundsNetwork and Cofunds, on the other hand, have not embraced the model.

Fidelity says it has DFM links within its Sipp and offshore bond but not on Isas. A spokesman says: “We are more than happy to have conversations with DFMs.”

A Cofunds spokesman says demand for DFM outsourcing has “decreased over recent months”. He adds: “This is an area of development for Cofunds which will be done some time in the future. At this time, we have no date.”

Fund Intelligence offers DFM services. Business development manager Nick Frank says the stance taken by Cofunds and Fidelity is a huge barrier to the take-up of DFMs.

He says: “If the platform cannot pay us, who will? We would rather the platform pays us.”

He suggests platforms that do not support DFMs may be trying to encourage IFAs to outsource to their own products instead, for example, their multi-manager fund services.

But he says they are likely to be working on “contingency plans” for DFM-enabling, in case the regulator insists they open up access under the RDR.

Some players have recently sold DFM services on the basis that clients can remain invested on their existing platforms despite the fact their IFA is outsourcing, but Frank adds this might not work on all platforms.

Novatis Asset Management announced a new DFM service in November, allowing IFAs to “manage their clients’ investments on their preferred platform, implementing their investment policy, their risk profiles and their model portfolios, while keeping control of the client relationship”.


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