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Platform watch: Why using a DM through a platform works

Using a discretionary manager (DM) is becoming an increasingly important consideration for advisers using platforms – and this increasing trend ties in to questions of what a platform can offer advisers in terms of driving efficiencies in their business.

By Scott Beasley is Investment Marketing at Novia | Published Aug 01, 2011 | comments

The job of the platform is to offer the choice of DMs that different advisers and their clients need – and the technological functionality and investment range to make it an efficient and worthwhile proposition for both high and low value investors. So what are the benefits of using a DM via a platform?

* Derisking an adviser’s business

Using a DM allows an adviser to focus on risk assessment, financial planning, managing the on-going relationship with a client and reporting, whilst an investment expert with suitable research resource manages their portfolio.

This ensures clients get the best possible investment management and advisers have the time and skills to manage their needs where they can best add value. It removes much of the compliance risk, and responsibility for performance, that advisers face

* Providing a consistent investment proposition for both high and low value clients

Using a DM allows an adviser to provide a robust and consistent investment proposition to their clients; expert investment management, externally reviewed asset allocations, regularly rebalanced model portfolios that can be used for clients with similar risk profiles and bespoke management where required. This is an important point when delivering Treating Customers Fairly (TCF) principles of consistent treatment and financial products that behave as clients are led to believe.

* Efficiency, driving down costs and maintaining profitability with varied clients

Increasingly competitive DM charges, online processing and reporting and using technology such as model portfolios via a platform allows an adviser to use DMs profitably and effectively for different value clients in a post-RDR world.

Model portfolio functionality on platforms allows advisers and their clients to access a very large range of models from many DMs. Clients can be setup online with such a model in a short space of time without time consuming paperwork. It also means maintaining custody of the assets on platform.

Many models now have investment management charges of just 25-50 basis points. The cost advantage is further enhanced by a big reduction in VAT. DM services are VAT-able whereas platform charges are not and reducing the cost of the DMs services feeds directly through to a tax saving.

Along with use of passive investments such as tracker funds or ETFs, and rebates passed on in full, this means DM managed models can be very low cost. Combining low-cost discretionary management, low-cost passive investments and efficient online processing means that low value clients can remain profitable for advisers, even for portfolios of less than £100,000, where many advisers fear they become unprofitable.

So how can a platform help to deliver these benefits to advisers?

Providing efficiencies to advisers comes through advances in technology and it is this that has made the DM via platform business model possible. In the past, where an adviser decided to outsource the investment management to a DM it meant the adviser effectively handing over his clients – and control - to the DM.

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