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From Adviser Guide: Outsourcing fund management part 1

Q: What questions should I ask a DFM?

It is important to ask what experience they have and what investment cycles they have worked through.

By Emma Ann Hughes | Published May 09, 2012 | comments

David Lumley, director of Arena Wealth, said you do not want to find yourself outsourcing to a DFM who has had limited experience in choppy or down markets – though any working over the past few years will have gained ample experience of these conditions.

He said you should also find out who else is in the DFM team and what skills and qualifications all the team members have.

You should ask a DFM what their investment process is and to explain their current portfolio positioning and rationale and justification for it in the light of the current environment, he added.

Mr Lumley said you should also ask them to describe the same thing from a year ago to consider how they have changed their approach.

Other pertinent questions include asking what performance a DFM is expecting to generate and with what volatility, what their past performance track record is and have them explain how and why past performance deviates from benchmark both positively and negatively.

Mr Lumley said: “You should also ask them to describe some recent successful and unsuccessful investments and right now, I would want to know about their views on the euro, banking and sovereign debt crises and how they will be dealing with these problems.”

You need to establish the quality of the management service you are dealing with.

Carl Lamb, managing director of Almary Green, said ask about performance and service; get evidence of their claims and see their service level agreements in writing.

Get recommendations where possible, he added.

Another key question, according to Mr Lamb, is whether the service will be team or individual based – i.e. whether fund movements will be decided by just one investment manager or by a moderated team.

He added cost will, of course, be an important part of the debate.

Mr Lamb said: “Your chosen DFM may be prepared to negotiate a special rate just for you, so don’t forget to ask.”

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