Discretionary Management  

Proceed with discretion: DFM survey 2017

  • Learn about recent developments in the DFM industry
  • Understand the potential differences between different providers, and how these affect clients
  • Comprehend the key issues of concern for DFMs as of late
CPD
Approx.45min
Proceed with discretion: DFM survey 2017

It’s now almost half a decade since the RDR rules came into force, marking a drive for transparency that would create significant upheaval for advisers, their clients and the broader retail investment world.

Certain sectors would have had considerably fewer concerns than others. Discretionary fund managers (DFMs), in particular, benefited from a surge in assets after many advisers opted to outsource their investment decisions and focus on financial planning.

Five years on, the story has become more complicated.

The proportion of clients’ investment assets managed by DFMs rose by a third between 2013 and 2015, from 18 per cent to 24 per cent, figures from Platforum show. But there have been signs that a plateau is in sight.

The establishment of industry body DFM Alliance by five of the largest discretionary firms in February, aimed at pitching the benefits of outsourcing investment decisions, can be viewed in part as an acknowledgement that sector growth has less momentum than it once did.

This is far from the only challenge facing such businesses today. Greater sector maturity has also led to an elevated level of scrutiny, particularly around the likes of suitability, from the regulator. Outsourcing rates may or may not be reaching a peak, but the fact remains that more advisers than ever are outsourcing at least part of their investment business to an external provider. Those that do so tend to use two or more DFMs to ensure they meet the needs of different types of client.

Other industry matters, such as the cost pressures that have become evident across the retail market, are also having an increasing bearing on the development of the space.

It is with these issues in mind that this year’s Money Management DFM survey examines the sector, taking in a broad range of details from basic company set-up to fees, products, portfolio approaches and the big issues identified by industry participants.

Concentration game

Firms interested in engaging a DFM will not struggle for choice, with more than 20 names involved in this year’s survey alone. The bulk of industry assets remains concentrated among a handful of firms, all of whom are included, and we hope to broaden out our findings further in future years to include more smaller players.

For now, the members of the DFM Alliance – Brewin Dolphin, Brooks Macdonald, Investec Wealth & Investment, Quilter Cheviot and Rathbones – hold considerable sway, as evidenced by their assets under management.

As Table 1 shows, Brewin Dolphin, Rathbones and Investec Wealth each has well in excess of £30bn in assets. The latter also boasts the largest number of clients among participants, amounting to 122,000.

Despite the apparent slowdown in industry growth, some of the bigger names have continued to record substantial asset growth. Brewin Dolphin’s latest disclosed level of assets, £39.5bn, represents a substantial increase from the £30.7bn recorded in Money Management’s December 2015 survey of the sector.

CPD
Approx.45min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Which of these is cited as an advantage that boutique DFMs have over larger rivals?

  2. What does David Gurr tell advisers and clients to focus on when looking for a DFM?

  3. Apart from Mifid II, which regulatory challenge below is of concern to Mark Fulton?

  4. What example is given to describe broad asset class definitions used by risk profilers?

  5. What does Brian Hill think about tiered fee structures?

  6. Why is RC Brown's Robert Clark not a fan of putting model portfolios on platforms?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Learn about recent developments in the DFM industry
  • Understand the potential differences between different providers, and how these affect clients
  • Comprehend the key issues of concern for DFMs as of late

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