In an industry where charges are in the spotlight, discretionary fund manager services are increasingly challenged around value for money.
It is difficult to determine the true costs at the point of purchase, and outcomes may not become clear until the damage has already been done.
Add in the continued regulatory and political pressure on costs and it comes as no surprise some advisers are obtaining discretionary powers for themselves and removing the DFM layer from their picture.
Over the past decade, technology solutions have steadily developed to help advisers manage their clients’ portfolios. Covering aspects from investment practice and customer engagement to activity monitoring and compliance, effective deployment of these tools is reducing the administrative burden for advisers.
True, there is still skill required for investment portfolio planning, but with more tools and support becoming available, and a more qualified and professional advice function, more advisers are grasping these technology solutions, taking on discretionary permissions and removing the third party DFM from the picture. Most importantly, this keeps the customer relationship with the adviser themselves.
Increasing focus on customer outcomes has seen the technology behind centralised investment propositions maturing to enable much greater tailoring whilst preserving the benefits of automation. Some larger advice businesses are capitalising on this, using their scale to compete with DFMs and enabling a more efficient model for their advisers, whilst many smaller firms are leveraging their agility to make use of technology to drive forward their own solutions.
The DFM sector is painfully aware of the pressure building. With many announcing the launch of, or additions to, their own advisory businesses, the gap between the DFM businesses and IFAs is shrinking at a rate of knots.
IFAs are not the only ones to recognise that there is less food on the table. We are already seeing consolidation in both adviser and DFM markets, as the pressure grows for reduced costs via economies of scale. This trend is only going to accelerate and there will inevitably be winners and losers. The key for advisers now is to consider whether their investment solution includes the right technology and partners, or whether some limitations might cause a partner to become a very uncomfortable competitor.
Rory Gravatt is a consultant at Altus