The days of life companies serving up all the needs of advisers are of course long gone. Traditionally discretionary fund managers were seen as peripheral and only used for the very wealthy client and trust work.
This picture has changed considerably but there is still a lack of maturity in the market. Financial advisers and DFMs are still in the stage of forming relationships and often have not yet settled on a proposition that they are fully comfortable with. This means there is a lot of activity right now on thinking, developing and implementing new strategies.
In the lead-up to RDR advisers were fully occupied ensuring their current model was ready for 1 January including, of course, professional qualifications and statement of professional standing requirements.
With that work largely done it is perhaps not surprising that advisers are increasingly turning their attention to modernising their client proposition which includes the investment solution.
What a financial adviser demands from a DFM largely depends on what they see as their own role. An adviser who sees himself as provider of investment products will be reluctant to refer that work to a DFM. If he is not doing the fund picking himself, what is he doing for his money? This is potentially dangerous to clients and the adviser’s business if the knowledge, skills and resources are not sufficient to deliver a good client outcome. It also means that the strength of the relationship between adviser and client is heavily dependent on investment markets which the adviser cannot control.
This picture appears to be changing rapidly. Advisers I speak to understand that they offer great value to clients by concentrating on financial planning. Financial planning means different things to different folk but my view is that this is the future for successful advisers. Financial planning is also something investment managers are not skilled at and is a differentiator for advisers. The emotional engagement good advisers achieve with their clients is not easily replicated by online competitors either. This is the crux of the issue which leads advisers to rethink whether they wish to carry on picking investment funds or spend time on what clients value most: time spent with clients understanding their lives, hopes, fears and aspirations. To do that requires skill and focus.
What advisers are now looking for from DFMs is more varied than in the past and is changing. Bespoke discretionary management for individuals is still a requirement and for many advisers being able to appoint a manager on behalf of their client gives them the satisfaction that the client’s investment needs are given personal attention. The financial adviser usually owns the client relationship, and periodically reviews the effectiveness of the DFM. FCA guidelines for advisers may mean they have to justify the DFM they selected on behalf of their clients.
