An article about suitability of investment options and commoditisation of DFMs got the PortfolioMetrix team animated recently. While there was a good balance of views in the article, there were also some sweeping assertions that I feel must be addressed.
As an investment manager, PortfolioMetrix is categorised under the DFM heading. This is frustrating because our proposition is not that of a traditional DFM, which means we operate very differently to any other investment manager.
Within the DFM space, there is an increasing focus on price but this is being driven by the DFMs who are struggling to differentiate themselves from the competition.
As Novia’s Bill Vasilieff said in a recent Lang Cat interview, “People who compete on price do so because they have nothing else to offer.” In another interview, A J Bell’s Andy Bell said that firms can compete on price, service and product but can’t compete on all three.
Benefits not burden
The article suggests that outsourcing is popular with advisers because “for a fee they can offload the burden of investment”. In my experience, it’s less that investment is a burden and more that advisers recognise that there are benefits for their clients and their businesses to delegate this aspect to experts who are giving the task 100% focus.
The key is what the relationship looks like: we work in partnership with our advisers, providing them with a complete package of technology, tools and efficiencies that help them provide an even better service to their clients and run profitable businesses.
They choose to work with us because we deliver value to them and their clients and our fee is evaluated within that framework, not as a commodity product.
A big risk for advisers who focus on price over value is that they do put suitability at risk. A ‘pile them high, sell them cheap’ approach is unlikely to have the finesse to suit all clients, and shoe-horning clients is one of the deadly sins that the PROD regulations is designed to stamp out.
The latest Schroders Adviser Survey found only 66% of respondents were segmenting their client base, with 70% still segmenting based on assets. It’s been over three years since the regulation came into force so it seems there’s still a lot of work to be done here!
Advisers who want to do the best they can for their clients, avoid falling foul of the regulator and realise tangible business efficiencies should ignore the DFMs that are selling their services on price and focus on the value they can gain from a full and fruitful working investment management partnership.
