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Philippa Gee: IFAs should ignore the DFM outsourcing spin

Philippa Gee MM blog

In a recent meeting I had with someone who I won’t name, but who holds a fairly key role in dealing with many IFAs across the country, I was told that the FSA are going to be concentrating on investment processes as a key theme going forwards.

Fair enough, I thought, although to be fair, haven’t the FSA already been doing this for some considerable time, so it’s case of nothing new there? “Oh no” I was told, “not so” and I have to say that the finger wagging in front of me really didn’t help. The next line might come as a shock, so prepare yourselves; I repeat I was then told “The FSA are going to be pulling apart anyone that doesn’t use DFMs for most of their clients as that is the approach they now prefer.”


Can I just say that if you have had a visit from such a person and are panicking, breathe easy. The fact that people are coming out with such nonsense is best alarmist and at worst smells like profiteering from your clients and your business.

I should point out that I don’t represent the FSA so I may have got this horribly wrong, but in my mind such a statement about DFM being the sole route to consider is plain wrong. DFM represents one option you might or might not consider for your clients, but it is not an issue that is being forced on advisers to adopt.

We all need to control risk and have a formulised investment process, but that doesn’t have to mean outsourcing your entire function out of fear and concern. It might suit some advisers and it might suit some clients, but it is no more than that. You are not going to be turned into a sales rep for the DFM industry.

So if you come across anyone saying this please send them to me.

Philippa Gee is managing director at Philippa Gee Wealth Management


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Absolutely spot on. The scaremongering that the d f m have been doing is appalling. Remember that these organisations have not historically covered themselves in glory – split capital trusts, precipice bonds etc. oh yes and as they are neither retail product providers nor platforms they cannot facilitate adviser charging despite best efforts to persuade people otherwise. A lot of the “fund managers” are no more qualified, professionally and academically than the average adviser. Be careful, these organisations are lobster pots, who are obviously concerned by re reg and are doing everything they can to slow it down. Do your research, in the words of “Don’t cry for me Argentina”, ” they are an illusion, they are not the solution they promised to be.”

  2. Neil F Liversidge 13th February 2013 at 4:14 pm

    This reminds me of the insurance company rep, who shall remain nameless, who told me I should use their pathetic excuse for a platform in place of Fundsnetwork which “Fidelity plan to close before the year end”. Yeah right. That was 7 years ago!

  3. This is just the sort of scaremongering that is going on in our business. If a broker sales rep is preaching this, then he needs to lose his job, no matter how good he is at sorting out problems. How anyone knows what the FSA is thinking prior to any formal anouncement is beyond me.
    Just like Phillippa, I use DFMs when they suit my client, but often the service is little better than a fund of funds, often not using their stockbroking expertise to enhance returns where appropriate.
    Post RDR we use a ‘clean’ share class, therefore some of the advantages of DFMs dissapear, so perhaps this scaremongering was just pleading to you to help him keep his job.
    Good article, look forward to hearing more!

  4. What a pointless article

  5. Why do Ifa’s want to take the risk of picking funds and all the hours of research this takes is beyond me and sounds like the dinosaurs still live! Being an IFA is hard enough now but running and tracking funds and their managers is full time job on its own and unless you have staff to do it I cannot see how you can do it adequately .playing at investment managers is great if that’s what you wang but the risk is enormous and you need very good and expensive research tools to cover all funds !to say their fund managers are no more qualified than the adviser is ludicrous and if that’s the case should be known when you do your due diligence .I agree DFM is not right for all but at the same time the risk of a DIY approach is very dangerous in the FSA world we now have .

  6. “The FSA are going to be pulling apart anyone that doesn’t use DFMs for most of their clients as that is the approach they now prefer.”

    This very week an organisation (ARC) has reported the results of an investigation into DFMs and found that there was widespread underperformance. The sheer stupidity of the remark is therefore breathtaking. Personally I shall continue to take a questionnaire to assess risk tolerance and use an asset allocation tool as the basis for the portfolio. And I shall choose the funds.

    Of more significance may be the approach of the FCA. After all as far as we know the FSA is virtually history.

  7. Re risk and Wealth management firms, recall the FSA published a “dear CEO” letter in 2011 stating that 80 percent of client files presented a high risk of unsuitability and probably quite a few Section 166s have been issued. We shall wait and see. Thank you Blair, I hadn’t see the ARC research.

  8. Absolutely on the ball Phillipa. That said I do use a proper stockbroker from time to time, but I don’t outsource – I refer. And if readers don’t know the difference I suggest they bone up. But on those rare occasions that I do I lay down my own ground rules. Bespoke portfolios only (none of this model – all in all out sub-standard rubbish). No collectives – only directly held equities and fixed interest securities. Client minimum £350k – in addition to other assets. Presumably if one goes to Savile Row one doen’t expect off the peg.

    In response to Anon 13 Feb 4.59. So if you don’t do the investments how do you justify your fees? Do I detect lifestyle touchy feely stuff? To me that’s not financial advice it’s social work. I may be wrong but I don’t see what a client is paying for in your case. For those of us who do our own investing we presumably benchmark and I’ll wager that a good many of us do no worse than DFMs and some may do even better. The APCIMS benchmarks are not impossible to match. Unfortunately many of these DFM lamentably fail to do so – could it be as a result of costs? They take a bite, presumably the IFA takes a slice and no doubt the portfolios are stuffed full of collectives – so the fund managers take their bite. How many fleas can a dog carry before he gets fed up?

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