InvestmentsFeb 12 2015

Client ‘poaching’ risk with DFMs that are also advisers

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Client ‘poaching’ risk with DFMs that are also advisers

Risks of client ‘poaching’ when outsourcing specialist investment function via discretionary managers can be apparent when using the services of firms that also have financial planning arms, according to a number of sector experts.

Quoted in the latest FTAdviser adviser guide, to be published later today (12 February), most experts agreed there was little risk of DFMs stealing clients due to the agreements between the parties and the fact that future referral business could be put under threat.

However, Emma Wall, editor of Morningstar.co.uk, warned the likelihood of a DFM stealing your clients depends on what other services they are providing.

Ms Wall said if advisers use a bespoke service provided by a DFM that also employs financial planners then there is “some risk” of poaching as the client will have a direct relationship with an investment manager at the DFM firm.

However, she said the probability of this happening in practice is somewhat reduced by the fact that the DFM is likely to have a relationship with the adviser across many of their clients.

Eric Clapton, chief executive of Wellian Investment Solutions, agreed it will always be possible that a client could request to consolidate their affairs in the hands of one firm with greater regulatory permissions.

However, while this is a possibility Mr Clapton also said in reality this is unlikely to occur as investment managers do not wish to encroach on the adviser’s relationship with their client.

Ms Wall said: “The DFM would not want to ruin this relationship and damage their reputation in the adviser market.

“Many DFMs are now making their managed portfolio service available on platforms and some DFMs are only offering their services exclusively via platforms. This means that the DFM has no relationship with the end client and only deals with the adviser.”

Mr Clapton added: “It is in the best interests of the investment manager to build a strong relationship with the introducing adviser and it would be very disadvantageous to the investment manager to poach clients.”

On the risk of poaching, Gareth Johnson, head of managed investment services at Brewin Dolphin, said an agent relationship should be put in place that means the DFM has a contractual relationship with the adviser but not the underlying client.

In terms of model portfolio services offer via platforms, again, Mr Johnson said there is no contractual relationship with the underlying client.

As such, Mr Johnson said a DFM cannot see the underlying client details and simply sees numbers – to put it crudely, the account number and the AUM via the platform – and therefore, he argues, “it is impossible to poach a client.”

To read FTAdviser’s Guide to Discretionary Fund Management click here.

emma.hughes@ft.com