Dan Jones  

Latest outsourcing initiative has some obvious omissions

Dan Jones

Dan Jones

The DFM Alliance, which launched last week, is the latest provider initiative that seeks to increase advisers’ “understanding” of their business propositions. 

There’s a fine line between promotion and education when it comes to financial services, and plenty of providers have come down on the wrong side in the past. Done in the right way, however, there could be some mutual benefits to be reaped. 

To its credit, the initiative does promise to address some perennial concerns. One is suitability, for which advisers still have responsibility when it comes to outsourcing. At a time when the regulator is taking a close look at the topic, clear lines of communication between discretionary fund manager (DFM) and adviser are necessary. Improvements here would be welcomed by all.

Another worry the Alliance will seek to mollify is the common suspicion among advisers that DFMs may end up co-opting client relationships. In its favour is the fact that, as more and more discretionary business is done via model portfolios on platforms rather than ‘bespoke’ arrangements with advisers, this issue is arguably less pressing than it once was. Platforms’ lack of end-client disclosure is one more barrier to DFMs’ predatory instincts.

But platform sales notwithstanding, seeking a new way to reach advisers suggests DFMs may be finding it tougher to grow their business at the rapid rate of recent years. It may be too soon to call a plateau in the rise of outsourcing, but adviser consolidation and an increased awareness of the costs involved are authentic headwinds.

On this front, there are a couple of notable gaps when it comes to the initiative’s initial focus: no mention is made of the difficulty in comparing DFM performance figures and charges. When questioned by Investment Adviser, the partnership said it may look at such issues in future.

These are longstanding bugbears for advisers, of particular relevance at a time when their own cost structures are being scrutinised more closely. The arrival of Mifid II next year, which requires a comprehensive disclosure of costs and charges from DFMs, will go some way to resolving this problem, but voluntary efforts would be a positive gesture.

The difficulties involved in comparing like with like should not be a reason to make no effort at all. 

Doing more to allow intermediaries to evaluate costs and performance would be the best way of showing that these firms are serious about engaging advisers. 

Dan Jones is editor of Investment Adviser