The third chapter of the Rathbones value of discretionary fund management report, published today (September 5), found 55 per cent of advisers felt client trust improved after they started working with a DFM.
A further 72 per cent of advisers said they saw an uplift in client portfolio performance, while 66 per cent saw improvements in their clients’ risk-return profiles.
However, the research also identified concerns over costs, as well as loss of fees and control.
More than 60 per cent of advisers questioned said the ability to justify their fee had prevented them from adopting a DFM, while 55 per cent weren’t prepared to lose control of the investment or value chain.
Despite these concerns, the research showed those that chose to work with a DFM reported higher annual revenues, and said they were able to charge an average of £10 more per hour.
In addition, the improved revenues have increased adviser pay packets. More than a quarter said their salary had risen by more than 10 per cent, while 12 per cent confirmed a rise of more than 20 per cent.
Mike Webb, chief executive at Rathbone Unit Trust Management, said: “The latest chapter of the report provides insights into the impact adopting a DFM can have on an adviser’s performance and has highlighted the benefits that adoption can bring on everything from client numbers and assets, to revenues and training.
“Importantly, the report also reveals that the longer an adviser works with a third-party investment manager, the greater the potential benefits.”
Those that have used a DFM for more than five years were shown to have, on average, 27 per cent more clients that those that had made the move in the last one to five years.
Of the early adopters 80 per cent claimed their clients had seen greater benefits compared with 65 per cent that had used a DFM more recently.
Mr Webb added: “Until now, advisers considering using the services of a discretionary fund manager had only hearsay and the experience of industry colleagues to base their decision-making on.
"We hope the report sheds some empirical light on the positive impact DFM adoption can have.”
This chapter of the research followed two previous reports that examined the impact of third-party discretionary fund management (DFM) on the adviser model, and the effect on the adviser’s relationship with the client.
Patrick Connolly, chartered financial planner at Chase de Vere, said: “Using a discretionary investment service allows advisers to focus on financial planning and client relationships. These are the areas where they can add the most value.
“However, many discretionary investment services are expensive, especially when the costs are added to adviser charges and underlying fund charges.
"The challenge for advisers is therefore to find a discretionary service at an acceptable cost.”
