DFMs and platform consistency

This week, Senior Analyst Andrew Ashwood (@Ashwood47) looks at which products are being used by DFMs on platform and the issue of ensuring consistency between models.

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Aug 13, 2019
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DFMs are a large and expanding channel for retail investment distribution, with impressive growth from the financial adviser sector via their model portfolios on platforms. Now more than ever, asset managers need to understand how DFMs construct their portfolios, which products they use and how they select them.

It’s clear from our recently published research on DFM Distribution Dynamics that all DFMs use single strategy funds – active and passive – in their platform portfolios. Fewer DFMs include ETFs or direct holdings of bonds, equities and investment trusts in their models.  But DFMs do commonly use these in their bespoke portfolios that are held outside platform custody. 

DFMs face various operational challenges with managing portfolios across multiple platforms – not least with ensuring consistency across the models. The default solution is to run model portfolios that purely invest in funds and to “move at the pace of the slowest platform”, as one DFM put it to us.

Most DFMs are forced to run different variations of their models on different platforms. Platforms do not have identical ranges of funds and often hold different share classes of the same fund. A DFM might prefer to use an ETF rather than the equivalent tracker fund – or vice versa.

Unitisation is one possible solution to platform model inconsistency. Tatton and Brooks Macdonald are both large DFM players who have gone down this route. But they aren’t biased one way or the other between their unitised funds and their models – it’s purely about giving advisers more choice.

Yet despite the tax and other advantages of unitised multi-asset funds, most advisers prefer the model portfolio structure, largely for the optics. Advisers can show their clients that they are invested in a sophisticated mixed-asset portfolio rather than just a single fund. 

We’ll be covering how solutions are structured and what selectors are looking for at Platforum ID – The Investment Distribution Conference on 2 October, along with other trends and developments affecting fund distribution across the UK and Europe. To register or for more information please click here.

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Our work covers the adviser, direct-to-consumer (D2C) and retirement markets, the influences in fund distribution in the UK and the investment distribution landscape in Europe and Asia. We work with platform providers, fund managers, life companies, advisory firms, distributors, partners of platforms and platform users. We help providers with strategy, market intelligence and proposition development. We also work with advisor firms, helping with their platform selection and due diligence. Content and insights are delivered in reports, through live events, in person briefings and webinars.

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