The questions we ask potential business associates are crucial if we are to get the full picture and ensure we are making informed decisions that will help, not hinder, our working practices and future prosperity.
Recently, New Model Adviser published an article (you can read it here) revealing the most important questions eight advisers ask DFMs. It’s a useful insight into what should be top of any adviser’s list when deciding who to partner with to manage investments for their clients.
Another relevant article was one written by Heather Hopkins from NextWealth which was published in Money Marketing in March this year (you can read it here).
In it, Heather lists the questions it’s essential to ask to be absolutely clear on what is on offer. She quotes one DFM she spoke to who said, “There is a lot of skulduggery in what DFMs are disclosing.” While it’s rare for a DFM to openly lie about what they are offering, sadly there are some who excel in the art of ‘smoke and mirrors’, so asking specific questions is a must.
It’s worth reading Heather’s article in full but I’ve summarised some of her key questions here:
Investment decisions
How are investment decisions made?
What is the process that is used by the firm?
Who is involved and what data is used to make fund selections?
Process
Map the firm’s process to your own. Do they work with your preferred platform(s)? Can they create efficiency gains in your practice? Scalability and repeatability are key.
People
Staff mix: Don’t just ask about the number of employees, ask about the mix. This will give you a view of how resources are allocated across functions such as asset management, client support, sales and marketing &technology.
Investment Credentials: It’s important to ask about investment credentials across the entire investment team. This includes asking for CVs or bios of analysts and key decision-makers, as well as looking at the specific credentials of the chief investment officer.
Compliance
It’s very important to ask and understand the compliance framework the DFM uses. Is it reliance on others (ROO) or agent as client (AAC)? At PortfolioMetrix, we think the paper published by the Personal Finance Society (you can read it here) is very informative and offers useful insight into the sort of pitfalls advisers can fall into if they are not fully clear about what they are signing up to.
As Heather’s article says, advisers should have their own experts look at any agreements. She highlights that some of the DFMs NextWealth interviewed suggested that there has been some “spurious legal work” done by some DFMs. It would seem it’s very much a ‘buyer beware’ scenario.
Obviously, no adviser would enter into an agreement with any DFM lightly but it is easy to focus on some areas and forget to cover others.
The two articles I’ve highlighted here are a great place to start when formulating a question set that will help ensure you choose a DFM that can become a partner for life. If you’d like more insights, please do contact us directly via engagement@portfoliometrix.co.uk.
