The results, outlined in Table 1, might seem mixed, but they should still come as a relief for many DFMs, given concerns about the industry’s growth potentially slowing down have lingered for some time now. There is also no notable dip on the back of Mifid II disclosures so far. However, market movements have most likely flattered the numbers for some: the punchy equity market rally of 2019 has spelled good news for many DFM portfolios.
Other challenges lie ahead. The assets DFMs do run may soon be less lucrative than they once were, as intermediaries who use wealth firms look to pass on cost pressures. Both external research and this year’s survey results suggest Mifid-induced cost pressure is now feeding through from advisers to the broader financial services industry. In June, a survey by research company NextWealth suggested that advisers planned to exert cost pressure on the providers they used in response to Mifid II – despite their clients appearing less concerned about fees than they once were.
Of that survey’s respondents, a relatively low 34 per cent said they had noticed an increase in client queries as a result of new cost and charges disclosures. Yet two-thirds of these respondents said the disclosures would prompt changes to their business. Fifty per cent said they would push platforms for lower fees, with half saying they would demand the same of fund groups and only 9 per cent planning to offer a lower-cost service for clients.
While the research did not reference wealth managers, it suggests that intermediaries are looking to mitigate cost pressure by passing it on to providers. Our survey suggests this is either already happening, or wealth firms are keen to pre-empt it by adjusting their fees. Several respondents have cited Mifid-induced cost pressure. In contrast to last year’s research, not a single respondent to the survey argued that the regulation is boosting the level of business they receive from advisers.
One participant, Charles Stanley, believes the pressures are particularly acute given the concurrent increase in competition in the market.
“Mifid II cost pressures are of particular note for us at the moment,” the company says in its response. “The combination of cost disclosures through Mifid II and new propositions being brought to the market has meant that DFMs and their services are under increasing pressures, both in terms of their own costs and those of the underlying investment portfolios that they manage.”
Ups and downs
