DFM ‘doesn’t add up’ for clients with less than £100k

The economics of discretionary fund management does not add up for the majority of advisers with mass affluent clients, Geoff Mills has argued.

The director of financial research and consultancy firm Rayner Spencer Mills said that outsourcing the entire investment process would only work for high-end clients with investable assets starting at £100,000.

The additional costs for the “lure” of a boutique manager would appeal to more wealthy clients who believe that they deserve a more personal service, said Mr Mills. The majority of mass affluent clients, he added, would question what a financial adviser is “bringing to the party” during the process.

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He said: “Advisers should not be fund pickers because their skill set is financial planning, understanding the aspirations of their clients. A DFM solution could be the answer, but that proposition should be targeted towards those with significant level of investable assets. You are paying the additional costs for the additional lure of management.

“But for clients with £30,000 and £50,000 to invest, the economics just do not add up. Furthermore, if you’re offering a DFM proposition across the piece, you are putting the client relationship at risk through that devolution.

He added that the vast majority of advisers are capable of dealing directly with clients “down in the mainstream”.

Alan Mellor, managing director of Cheshire-based Phillip Bates & Co Financial Services, said: “I only find DFM appropriate in so far as getting proper diversification using direct shareholdings but you need £150,000 to make it worthwhile.

“DFMs do their own model portfolios but fund of funds do not have definable track record for my liking. I would not like to pass over the whole story of investing to another party.”