In this final part, before our concluding summary and some basic tips, we turn our attention to the relationship between DFM, adviser and client, and suggest some points for consideration when assessing whether the service and support you are likely to receive will meet the needs of your business and clients.
Some of the questions you should ask include:
Does the firm have a local presence/branch office?
Will you and/or your clients be provided with a dedicated team or contact?
What access will you and your clients have to the portfolio managers?
In line with regulation, DFMs will now report quarterly to their clients, but the detail included beyond the required basic valuation varies firm by firm. So here are some further things to check:
In addition to the valuation packs, what other literature and supporting material will be provided?
Outside of the scheduled valuation process, how easy is it to obtain an up to date valuation? Will you, the adviser, have access to an online portal? Will this just be for valuation purposes or will you have full transactional history?
Similarly, will the client have access to a portal?
What level of tax reporting will be provided and is there any additional charge for additional reports if required?
Is there an app available?
Can you obtain a consolidated firm-wide view of all your clients' holdings and valuations?
Does the DFM’s valuation system integrate with your back-office technology?
How streamlined is the onboarding process, and how much assistance will the DFM provide in this respect? Do they have a dedicated new business processing team for example?
Are electronic signatures and verification acceptable to the firm?
In summary
In this series of three articles, we have suggested a framework of quantitative and qualitative assessments that will hopefully provide a launch pad in developing your own due diligence process.
The advisory business, however, is still very much about people. You, and more importantly your clients, will have a long-term relationship with your chosen DFM partner.
Therefore, investing a little time in some face to face meetings with the key people in the DFM team that you are likely to be working with is a worthwhile inclusion in your overall due diligence process.
Having established a robust process for selecting a DFM, the journey has only just begun. A sound due diligence process should also include a framework for ongoing monitoring and review of the selected providers.
A basic framework should at the least include a review of the following areas:
Any changes to corporate structure, financial strength, capital adequacy and so on?
Changes to senior management and investment team?
Have there been any changes/additions to product ranges and charging structures?
Update from the investment team on the latest house views and positioning.
Performance updates and comparisons to suitable benchmarks and peers, together with attribution analysis to better understand how these results have been achieved.
Finally, we would strongly recommend a periodic sample audit of client accounts to ensure that the changes to asset allocation and positioning communicated centrally by the investment team are being actioned in your clients' individual portfolios in a timely manner.
We hope this short series has been insightful and given you a framework around which to build your own due diligence process. If you would like further general information or independent views and ratings on many of the UK’s leading DFMs, RSMR's DFM Academy provides this information and more.
David Perkins is a consultant at RSMR. Prior to his work on investment management, he owned and ran an IFA practice
