At a glance: what should be on the adviser's checklist when outsourcing?
- How well does the DFM integrate with your platform?
- What accreditations does the DFM have?
- What do existing clients say about the DFM?
- How does the solution support your clients?
- How flexible is the DFM?
- Has it provided a due diligence pack?
- What is the firm’s core business, culture and values?
- What is the investment process?
- What sort of risk-rated models are used?
- What support do they offer intermediaries?
- Will they provide value for money through technology investment?
- Although it is no indicator of future performance, what is the historic investment process and performance related to that strategy?
Another potential down-vote for outsourcing is the lack of control that an adviser might have over how clients’ money is being invested, or even over the client relationship once they outsource.
In 2015, Emma Wall, editor of Morningstar, told FTAdviser that advisers who use a bespoke service provided by a DFM that also employs financial planners could face “some risk” of poaching as the client will have a direct relationship with an investment manager at the DFM firm.
However, contributors to this guide believe it is unlikely a DFM would seek to steal or consolidate clients, believing the process of advice and the process of investment management are best done by the experts.
Peter Mullins, head of business development at European Wealth, says: “The relationship of the DFM with both the adviser and the client is crucial. If the relationship is a good one, the adviser should not feel threatened if the DFM has direct and regular contact with the client.
“In fact, that should be encouraged as we are in a relationship-driven business. Some DFMs have little personal contact with the client, while others encourage it.”
It all comes down to how respectful the DFM is of the client-adviser relationship. Emily Booth, senior investment manager for Parmenion Asset Management, comments: “The adviser owns the client. When they choose to work with us, advisers can dictate the level of control they want to maintain.”
Cost to client
As mentioned in a previous article in this guide, cost can be a factor, if the end client has to pay for platform fees, MPS fees, advisory fees and any other associated costs, such as interim trading expenses like stamp duty.
This is why, according to Mr Mullins, advisers should put a focus on cost high on the list of things to consider before outsourcing.
He says: “Advisers should look at the total DFM’s fees and how they are charged. For example, some use a sliding scale depending on the size of the portfolio, while others will be a set amount, but other charges may apply, such as dealing fees and the ongoing management fee.
“Also check whether these fees are compatible with the fees charged by the adviser, and how these compare with those of other DFMs.”
Also, some DFMs are not prepared to take on low-value clients, so Mr Mullins comments that advisers should ask what are the minimum sizes of portfolios that the DFM is prepared to manage.