DFMs should get rid of new customer deal

Charlie Parker

Charlie Parker

Nationwide hit the spot with its advertising some years ago showing how banks frequently offer advantageous pricing only to ‘new customers only’ and other brands have followed suit.

The end of ‘new customers only’ is vital for the discretionary investment management market

The problem though of existing customers over-paying is even more profound in the discretionary investment management market.

While most firms have worked hard to create compelling pricing points for new customers – and particularly those brought to them by financial advisers – the unheralded reality is that existing customers are rarely enjoying the benefits of this pricing.


The vast majority of new assets attracted by discretionary investment management firms today are sold at flat ‘all in’ fees tapering down from 1 per cent based on assets provided.

However, it is common to find existing clients – particularly those who contract directly with the DFM – on prices as high as 2 per cent even when they bring substantial assets to the firm.

These historical asset bases can be among the most profitable for firms which face the challenge of seeing their profitability slide in order to harmonise pricing.

Those who have been bold enough to make the change should be praised.

Recently the Midlands-based wealth boutique BRI Wealth Management took the jump – ridding itself of dealing and settlement fees for its DFM clients.

It led to a fall of 40 per cent in one-year profits despite an increase in revenue.

There is pain in this change but also clarity.

The firm can now represent itself to its clients as being entirely fair to all.

How though do advisers grapple with firms that have been unable or unwilling to take such bold action?

Some shrewd questioning would help.


Rather than simply asking a DFM to disclose its rate card advisers would do well to ask firms to disclose the average fee paid by its current asset base for each portfolio size and service type.

Indeed there is an argument that a client has a right to know if other similar clients are paying far more or far less for the same service.

Of key focus is that historical client bases are often charged dealing and settlement fees over and above an artificially set annual management charge.

There are of course some individual DFM clients who argue they prefer to be charged dealing and settlement fees, though these are a rare breed.

Such pricing structures create poor incentives within firms.

It could lead portfolio managers to focus on higher-margin clients or to avoid recommending that their direct clients also pursue a financial planning service – for fear of the adviser guiding them to more competitive pricing.

More broadly the risk involved in dealing and settlement as a revenue line for DFMs is long-discussed with strict controls required to ensure profitable turnover never becomes excessive for the underlying client.