FT Adviser Roundtable

8 Oct2015

FT Adviser: are IFAs aware of the full benefits of DFM?

As the deadline for the Retail Distribution Review (RDR) approaches, independent financial advisers (IFAS) are being encouraged to use a third-party discretionary fund manager (DFM), allowing them to focus on what they do best – servicing their client relationships.

That said, many within the IFA community have not yet begun to consider their options in introducing a DFM facility to their client base. In seeking the most appropriate service while delivering best value, what factors need to be taken into account?

With representatives from Close Asset Management, the financial planning community, Cofunds – not yet having selected a dedicated DFM partner, and the Personal Finance Society, the following discussion will look at all facets of the DFM space and hopefully shed some light on a little-tapped area of the market.

Sam Shaw/Investment Adviser: Thank you all for coming, and thank you to Close for sponsoring the event. From Close’s perspective, would you like to define exactly what your DFM service looks like, and what you bring to the party?

The discretionary fund management service provided by Close is a very flexible expression of our investment management capability, and is designed to be available from as little as £1,000 all the way through to multi-million pound bespoke arrangements for clients, and the idea is that it is underpinned by exactly the same investment philosophy and process. So, irrespective of size or sophistication of client, they get access to the very best of Close’s investment capabilities.

Would the IFAs in the room like to talk us through their current experience of using discretionary management services?

Historically, we have used DFMs for clients with £150,000 to £200,000. We use DFMs because I do not want our advisers picking individual funds – we are IFAs, not fund managers. In the past we have used multi-managers to get round the lower solution, but they are more expensive. So, obviously if a multi-manager solution is chosen, at least it keeps you in the right risk profile, but the total expense ratio (TER) is typically over 2 per cent. Whereas if we can have access to discretionary fund management at a lower level, you can get the same diversification and the same risk profiling, and the TER is similar to a normal fund.

I would ditto all of that. The only element I would add is that we looked at who could manage money through the Lehman Brothers crisis. It has to be the ultimate acid test for any fund house.

We defined three houses only that we thought at the height of the crisis actually managed money properly: Standard Life Wealth Management, Cazenove and Close Asset Management. The difference between the three is that Standard Life Wealth has an entry level of a minimum of £500,000. Cazenove has a minimum of £200,000. We can now access the funds from £1,000 upwards, which provides an entry level at the lowest point possible.

Do you think that is the way discretionary fund management is going to go, that people will start coming in at a lower entry point?