Use of DFMs and passives on the up, says Nucleus

Investments through platforms are increasingly gravitating towards passive options such as tracker funds and ETFs and outsourced solutions such as discretionary managers, according to platform provider Nucleus.

In an interview with FTAdviser, Barry Neilson, business development director for Nucleus, said that the firm was seeing assets moving to outsourcing at one end of the spectrum, through to a heavy use of passives in the lead up to implementation of the Retail Distribution Review.

Dimensional Fund Advisers are the second biggest fund group on Nucleus according to Mr Neilson, who said that “quite a number of IFAs” are using those services as they are all passive.

He said: “The last time we looked at all the model portfolios we run, over half of those have some element of passive content in them and every time we actually measure this, the percentage is higher.

“That is partly due to concern with turbulence in the market and it’s probably also down to cost.”

With regard to the use of DFMs, Mr Neilson said that this was reflective of a broader trend towards outsourcing, with platforms becoming an increasingly popular route as the adviser is more “in control” and is therefore less at risk of losing ownership of the client relationship.

Mr Neilson admitted that historically a lot of IFAs have been “uncomfortable” with DFMs, partly due to having to effectively pass the client over so that the DFM would have custody of the client.

He said: “From the IFA’s point of view, they can monitor the DFM’s performance on a client by client basis, daily if they want to, and if they decide to terminate the relationship with the DFM it’s far easier doing that on a platform and go for another one.”