Editor’s note: DFMs need to focus on adviser service

Let’s talk about discretionary fund managers. It’s an important conversation to have: even advisers who adore their investment manager admit that the market as a whole is murky, highly profitable and a nightmare to compare.

They are also growing in importance, in terms of both volume of assets and the number of advisers that are outsourcing at least part of their investment process. We thought it was about time to add some numbers to the debate.

First, thank you to our readers for a fantastic response rate: more than 360 advisers and around 50 paraplanners weighed in for our research. It has given us a great wealth of data to draw from for our cover story this week.

A quarter of those surveyed have increased the number of DFMs they have used since the RDR. Just 7.7 per cent have cut their panel. The principal beneficiaries have been Brewin Dolphin — used by a third of our sample as their primary DFM — and Quilter Cheviot — the preferred choice for more than 10 per cent.

Advisers have clear priorities when using DFMs, our survey indicates. Performance is rated for importance at 8.2 out of 10, compared to 6.5 and 6.8 for brand reputation and manager selection respectively.

There is an obvious contradiction here: advisers cannot simultaneously say that brand is the thing they care least about but show such a preference for two particularly large brands over the rest of the players in the market.

A deep dive into the DFM market: The MM cover story this week

That is not to say that advisers are oblivious to concentration risk, however; while 23 per cent use just one DFM, 14 per cent use at least five outsourced managers. The answer to why there are clear favourites almost certainly lies in advisers’ next-highest priority: service level and ease of relationship.

Anecdotally, those big names are always in the foreground at local meetings, events and conferences. They could even be described as thought leaders.

They are at the front of advisers’ minds when running day-to-day business. The proof is in the strength of some of our feedback in favour of these companies: “amazing” service, “excellent” communication and “highly approachable” teams.

Yet DFMs are not immune from a regulatory environment built on fee justification and transparency. They, and the advisers who use them, have nothing to fear if they can prove that their performance outweighs the costs of their usage.

That equation becomes much easier to square when DFMs go the extra mile.
Agreeing to meet the requirement to report a 10 per cent drop in a client’s portfolio under Mifid II, so that it doesn’t fall on the adviser, is one recent innovation that springs to mind.

Advisers can only hope that such service improvements continue.

Justin Cash is editor of Money Marketing. You can follow him on Twitter @Justin_Cash_1

Money Marketing will be hosting a session on the future of investment planning and the role of discretionary managers at the Money Marketing Interactive conference on 3 May. To register now, click here.


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There is one comment at the moment, we would love to hear your opinion too.

  1. “Agreeing to meet the requirement to report a 10 per cent drop in a client’s portfolio under Mifid II, so that it doesn’t fall on the adviser, is one recent innovation that springs to mind.”

    This doesn’t make sense, the regulatory obligation is on the DFM to report not the adviser, so they have to do it anyway…

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