The DFM Train Looks Unstoppable

Seven out of ten independent advisers are now outsourcing portfolios to discretionary fund managers (DFMs), according to a new study by Investec Wealth & Investment. And more than half are expecting to increase their use of DFMs over the next twelve months.

So should we be surprised?

Well, hardly, it seems. IW&I agrees that the main driver has been the complexity and the additional compliance obligations that have come with RDR. And that there have been other knock-on effects too – 53% of the 253 IFAs interviewed by IW&I during May said that their key priority since RDR has been to consolidate their existing client base, and another 9% said they have been taking steps to actually reduce it, in an effort to improve quality and to focus on more profitable areas of the business.

That’s remarkable in itself. More remarkable, probably, is the finding that only (38%) said they’d been trying to grow their business by attracting new clients.

But let’s take another look at those DFM figures. Before the onset of RDR in November 2012, only 20% of IFAs said that they were expecting to increase the number of client portfolios outsourced to a DFM over the coming year. Now, the figure is 52%. That’s a lot of change in six months.

The statistics are no less remarkable when we ask what proportion of portfolios are actually outsourced to DFMs (as distinct from the IFAs simply having DFM arrangements on offer). Fully 16% of client portfolios were already outsourced in May, says IW&I – almost half as many again as in November 2012 when the figure was 11%.

The reason? Not just because using DFMs enables IFAs to focus on more profitable aspects of the job – especially financial planning – but also, they say, because it benefits the clients themselves. 60% of the IFAs questioned by IW&I say that the switch has impacted positively on their clients, particularly during a period when many advisers have been adjusting their businesses in light of the new regulatory regime.

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