There’s an interesting video discussion about the future of DFMs and outsourcing investment on the Money Marketing website. If you have a few minutes I’d recommend you take a look.
On the panel is Nigel McTear from Signpost Financial Planning, an independent financial adviser who has been partnering with PortfolioMetrix since we launched in the UK in 2013. As well as independent investment expert, Graham Bentley, there are two representatives on the panel from the DFM Charles Stanley (and quite a bit of pop-up advertising for them too, as they sponsored the video). I guess it would be fair to say that the Charles Stanley model is a traditional DFM one, the rule book for which PortfolioMetrix tore up when we structured our own proposition.
Traditional DFMs come at a cost
In the traditional DFM model, advisers put their clients in direct contact with the investment managers. While some clients may like this approach, it usually carries a significant cost, plus it can distance the adviser from the client relationship unless handled very carefully.
Nigel is very upfront about saying that partnering with a discretionary investment manager (us) was the best thing he ever did with regards to his business. He makes a good point that the term ‘outsourcing’ isn’t really valid because his is very much a partnership role with PortfolioMetrix. We provide him with the tools to keep his clients up to date with their investments and the general investment climate. We don’t sit down directly with his clients so his relationship remains undiluted.
‘Agent as Client’ bad news for advisers
Nigel makes many points that will resonate with advisers who are considering how best to manage investments for clients, within the framework of a growing financial advisory business. He highlights how many of the outsourcing options require advisers to operate under ‘agent as client’ rather than ‘reliance on others’ – something we agree adds risk to advisers, should something cause clients to question their investment performance.
Keep risk profiling tools aligned
He also raises the danger of using separate risk profiling tools to ones provided by the discretionary investment manager. He makes the point that the link between the two needs to be seamless or there is a high risk of mismatches that can leave clients invested in portfolios that fall short of their risk profiles.
All-in-all, it’s a useful discussion around why it’s worth advisers considering using a third-party to manage investments and what some of the issues can be without in-depth research and knowledge of the pitfalls.
