DFMs can build fixed income, structured products, alternative investment instruments and bespoke portfolios into an adviser’s product offering and help them to have a better understanding of them. Due diligence on a single DFM provider is more straightforward and efficient compared to a similar process on every fund manager that an adviser works with.
On top of this primary focus to deliver strong investment performance, I also see other benefits and opportunities.
From regular communication with intermediaries it is clear that outsourcing to a DFM provider also allows financial advisers to focus on wider financial planning, in particular pension and inheritance tax planning. And having more time to focus on client service and communication, dealing with new client opportunities and expanding the services they provide are further benefits for advisers.
One of the key obligations of RDR is greater transparency and clarity around charging and service costs. Transparency is at the heart of many DFM services. By outsourcing to a DFM, advisers and their clients can better visualise and apportion investment management costs.
I believe that RDR may be the catalyst for many financial advisers and intermediaries to start a discussion with a DFM provider. The study found that 20 per cent of advisers said they would be increasing the number of client portfolios outsourced due to RDR, with just 4 per cent claiming they would reduce. However 76 per cent envisaged no real change – the expectation is that many are taking a wait-and-see approach to RDR, looking to ascertain how the market evolves in the coming months.
The financial advice industry is undergoing a huge change. The rise of platforms and RDR are just two of the game-changing challenges for all companies involved in this process. It is a critical time in the evolution of the advice industry and a time for advisers to maximise all opportunities open to them to strengthen and improve their service proposition. Risk should never be underestimated and by using a DFM, financial advisers can provide a better investment management service and reduce the potential for poor performance.
There is clearly very positive momentum in the market for outsourcing to an investment expert. The next six months will demonstrate the extent to which the trends identified in our research will materialise.
Mark Stevens is head of intermediary services of Investec Wealth & Investment
Key points
The benefits of a DFM service have been accentuated by RDR and financial advisers should see this as an opportunity.
