The Wellian Investment Solutions’ investment director said the growing burden of regulation means more advisers will look to outsource, but he warned that many risk “getting lost” in the priority scheme of large private asset managers.
He cautioned against automatically picking DFMs with the most recognised brands, as well as sticking to one company when multiple DFMs might be necessary to satisfy clients’ requirements.
He said: “All DFMs have different styles and investment strategies, so you may find that one firm’s portfolio is more suited to your low-risk clients and one is better for the moderate-risk profiles, for example.”
Mr Mayo advised IFAs to compile a shortlist of three or four candidates after scrutinising their portfolios, the risk controls and the costs.
Advisers should then send the shortlisted DFMs a detailed questionnaire, he said, asking questions about their services, products, company culture, investment experience and firm’s history.
Mr Mayo also urged advisers to avoid cutting corners when looking for a discretionary manager and to consider services that may represent good value in the long term.
He added: Many advisers will look for – and are quickly impressed by – substantial assets under management at first glance.
“While these seem to be the most obvious way to measure a firm’s overall success, it might not be the best guideline to use in terms of assessing suitability.”
Scott Gallacher, director of Leicestershire-based Rowley Turton, said: “I struggle to see what DFMs really add. A client’s risk profile and timescale can usually be serviced perfectly well by a bespoke portfolio made up of retail funds.”
|Wellian Investment Solutions’ DFM checklist|
|1. One size definitely does not fit all – consider DFMs of all sizes|
|2. Understand the portfolios – prepare a due diligence questionnaire|
|3. Endorsement from a trusted source – look for third-party recognition|
|4. Do not be tempted to cut corners – look for value, not cost|
|5. Make sure you have things in common – look beyond AUM|