Discretionary fund manager. The term gets a different reception depending upon who you are talking to.
For every DFM devotee there will
also be a naysayer with tales of woe to impart. Very often those tales are the
result of a failure to establish that most critical factor when building the
relationship - is the DFM a good fit with my advice business?
There are several elements to
that degree of fit - some that rigorous due diligence practices will pick up, other
that are much softer. The due diligence aspects have been widely discussed so
this article is focused on the softer elements.
First, what do your clients expect from their relationship with your firm and the DFM? For some customers, it is all about “performance” - they are happy to have minimal contact with the DFM, just caring about growth and returns a la the stockbroker-type relationships of old. Personalised service is not required and the client expects results without lots of meetings and interaction.
Other clients sit more at the
“fluffy slippers” end of the scale, and require a lot more hand-holding and
reassurance. They want to know their investments are growing, but also
need a sense of comfort, security and interaction - not seeing the DFM
representative at least quarterly would unsettle this type of client.
Most sit somewhere in between -
they want some interaction and decent performance in line with the type of
advisory business they signed up to. Getting this fit right is half the battle,
but the other half is ensuring it fits with the advice model- and this is where
problems have historically arisen.
1) Who owns the contact strategy
for the client? If the DFM contacts the customer more often than the adviser,
will this quickly become an episode of “Whose client is it anyway?”
2) Does the DFM use the same
language on risk? Few clients will be comfortable with differing scales
and descriptors – explaining to them that a carefully calculated “5” in
adviser-land actually means “3” in DFM-speak or that moderate and cautious are
actually the same thing isn’t a great way to start any sort of long term
3) What type of service adds
value for the client base? Model portfolio services, equity trading and
derivative portfolios all sound very impressive but may not align with clients’
expectation, or more importantly with what clients actually need.
4) Does the DFM understand how
the adviser operates? This means digging beneath the sales pitch to explore
end-to-end processes, especially at the boundaries and before entrusting any
clients’ money to the new partner.
Getting these basics aligned
before you start deep diving on the due diligence of your DFM beauty parade may
seem obvious, but the road is littered with defunct DFM relationships where
this understanding was never reached.
Rory Gravatt is a consultant at Altus