Over half of all UK financial advisers are now outsourcing their clients’ investment management to Discretionary Fund Managers, a new report from Investec Wealth & Investment shows. 54% of all the advisers polled said that they were placing client investments to DFMs – compared with 48% in 2012.
So does that mean it’s game over for the old way of working? Hardly, says Investec. Although 84% of the IFA sample who use DFMs say that they do it to reduce their potential exposure to regulatory risk, they also make it clear that they expect to retain a high degree of control.
Under their existing DFM relationships, 97% of the advisers say that they still insist on remaining responsible for assessing the overall suitability for each client, based on their tolerance to risk and capacity for loss. And 66% said that they take overall responsibility for agreeing the client’s investment strategy – suggesting in most cases, for instance, that a DFM’s mandate may cover only part of their overall portfolio.
17% of the sampled advisers said that they remain responsible for asset allocation decisions – implying, Investec says, that for certain clients IFAs still retain a high degree of involvement in the investment management process while working with a DFM.
It’s also clear that advisers employ a variety of structures to underpin their DFM working relationships, and that they often employ more than one structure, depending on the DFM. 45% dais that they use outsourcing agreements, 36% use an adviser as an agent, and 35% favour tripartite agreements.
“This study clearly shows that the needs of advisers and their clients are far from homogenous,” said Mark Stevens, Head of Intermediary Services at Investec Wealth & Investment. “And DFMs have to adopt a flexible approach if they are to develop successful partnerships.”
“DFMs that take a ‘one size fits all’ approach to working with advisers ignore the often complex and varied requirements of their clients that is only properly exposed through providing suitability advice.” Flexibility is required, he says, if the IFA is to be able to determine the mandate, and if the DFM is to focus successfully on managing each client’s portfolio in accordance with what has been agreed with the adviser.