Sifting through DFM data is worth the effort

There are few sources of information that, when pulled together, offer some insight into how discretionary managers and outsourced solutions compare.

A survey by Investec Wealth & Investment earlier this year found consistent investment performance is ranked among the top-five factors applied by advisers when selecting a DFM, alongside considerations such as value for money and fee transparency.

Alan Durrant, chief executive of Wellian Investment Solutions, says: “It would be helpful if more information were available to investors so they could better understand their DFM and make better informed decisions.

“Firms like Arc & Defaqto are certainly helping with this. But this really only works where there is a common investment product, such as model portfolios, where you can compare like for like.”

He says it is even more difficult to compare the performance of bespoke portfolios.

Mr Durrant suggests: “More information could actually prove to be a dangerous thing, as clients start comparing the performance of their bespoke portfolio with that of a portfolio with a very different objective.”

Among the performance figures available are the four private client indices (PCI) run by Asset Risk Consultants, or Arc, which gathers data from more than 50 investment houses. Each of the PCI categories is named after its risk profile relative to equity markets, including Cautious, Balanced Asset, Steady Growth and Equity Risk.

Of these, the Arc Sterling PCI Steady Growth PCI delivered the best return over the past 12 months to November 12, with an average return of 3.6 per cent.

But the average returns of the Arc Sterling Equity Risk PCI and the Arc Sterling Balanced Asset PCI are not far behind, generating 3.5 per cent and 3.2 per cent respectively. It’s no surprise the Arc Sterling Cautious PCI delivered a slightly lower average return of 2.6 per cent.

Indeed, index performance has been somewhat muted in the past year. The FTSE WMA private investor indices generated a similarly narrow range of returns over the past 12 months to November 12, the best of which was from the FTSE WMA Stock Market Conservative index, which rose 3.4 per cent. The rest of the indices managed to generate returns in the range of 2.1 per cent to 2.7 per cent.

Research from ComPeer on the UK wealth management industry suggests the second quarter of 2015 was “less promising” than the first quarter.

It reveals investment assets for wealth managers fell by 2.1 per cent but increased by 2.3 per cent for execution-only brokers, leading to an overall total investment asset value of £732bn – down 1.3 per cent on Q1.

In its research, ComPeer states: “Total revenues were down 4.9 per cent on the previous quarter and by 0.2 per cent year on year, one of the few key statistics to fall on a yearly basis. Total costs were down 1.8 per cent quarter on quarter as a result of improvements in efficiency and lower trade volumes.”

Ellie Duncan is deputy features editor at Investment Adviser