However, sometimes such a breakdown is dependent on definitions. 7IM, for example, notes that 100 per cent of its assets are in models, but adds that it does offer a distinct bespoke service even if it does not run tailor-made portfolios.
Income streams
Whether in bespoke or models, DFMs are increasingly likely to use specialist portfolios as a route to growth, with a knock-on effect for advisers and what they can offer clients.
Research by Asset Allocator, a DFM-focused sister publication to Money Management, has found potential room for growth on this front. When it comes to model portfolios, just a third of the DFM firms covered by Asset Allocator’s proprietary databases run ethical or sustainable products.
Around half offer Aim model portfolios. Income model portfolios are the most popular, with 70 per cent of companies offering this service.
Many are still in the process of expanding the options they offer clients. DFMs continue to launch ethical model portfolios, even if differing ideas of what constitutes ‘ethical’ mean this would arguably be better suited to the bespoke treatment. Some continue to debut new propositions in the already crowded income market, most likely with an eye on the decumulation market. But when it comes to the growing mass of assets that must now be managed for clients who are at or beyond retirement age, it is bespoke, not MPS, that are being tipped as the winner.
Defaqto’s latest DFM Satisfaction Survey, released earlier this year, revealed a spike in the percentage of adviser investment business sitting in wealth firms’ bespoke portfolios, from 20 per cent in 2017 to 31 per cent a year on.
The company may not have full confidence in the data, describing its findings as “curious”. But Defaqto suggests that the complex nature of managing assets in decumulation has made a tailored approach more suitable.
“It is likely that decumulation investment pots could be larger, and the complexity of changing lifestyle as you get older may make these pots suitable for bespoke management,” Defaqto says.
As such, clients may find it more expensive to manage their decumulation needs, even if the outcomes produced by going bespoke ultimately prove better.
Some discretionaries such as 7IM are already seeing income as a route to growth. “One trend we are seeing is that those advising on drawdown are outsourcing to a discretionary service such as our Retirement Income Service, which is designed to provide firms with a more effective, scalable and sustainable approach to looking after clients income needs in drawdown,” the company notes.
As such, DFMs seem prepared to meet clients’ needs in this respect. But not all specialist portfolios necessarily have a bright future.
