Defaqto has found that essentially there are two structures that fit the bill when it comes to outsourcing solutions for advisers: multi-asset funds and discretionary fund management.
Within the DFM landscape there are three types of solution: bespoke, managed portfolio solutions and unitised managed portfolio solutions (not segregated). At a basic level, DFM segregated portfolios, in both ‘bespoke’ or ‘managed portfolio’ forms, are often perceived as services.
For multi-asset funds there are several subsets and the variations are not mutually exclusive, which require a clear understanding and vision of asset types, investment styles, investment method and management approach.
In this article we will compare the managed portfolio solutions subset of DFM and multi-asset funds, both are which are likely to be popular options for advisers seeking to implement a centralised investment proposition for mainstream clients.
It should be remembered that the priority for investors will always be to achieve a satisfactory return. So, whatever the vehicle used to achieve this, fund or DFM, there are some important investment-based decisions to make first.
Managed portfolio solutions
All options in this area have an approach to investment that is unique to them.
The key consideration for using an MPS as an outsourced investment solution is the ability to gain access to a diversified portfolio of assets with a defined asset allocation structure, often run by a number of different underlying managers from different firms and overseen by the distributing investment house.
In order for portfolios to fit the bill as a ‘managed’ solution they need to be diversified and managed to a known objective. This objective should be suitable for and in line with the client’s goals and preferences.
It is important that the adviser believes in the investment approach as well as the solution being suitable for the client.
What all this means is that there are some fundamental decisions to be made on the type of MPS solution. In reality it is the same kind of decision making that needs to be done for any investment, funds and bespoke DFM included.
This graphic summarises the options available and clarifies the required thought process.
Investment method: active vs passive
The above should enhance an adviser’s knowledge of the approach taken by discretionary management firms and the market positioning of propositions, if they know that the house preference for accessing markets when constructing portfolios is through active or passive holdings or indeed a blend of the two types.
Although usually a fundamental belief, the drivers of preference here tend to fall into three categories:
• Cost: passive funds tend to be cheaper overall which reduces drag on performance. Active fund managers require more resource in terms of analysis but would argue that rewards are potentially higher