Research from Nucleus earlier this year found that almost half (47%) of UK advisers were looking to increase their use of DFMs in the next 12 months.
This renewed interest in DFMs has seen concerns raised about how easily advisers can compare and assess different firms, according to a report from financial services PR firm MRM, which put the panel together.
Current method
Most advisers currently use a blend of qualitative and quantitative factors when assessing firms, but the lack of standardised data published by DFMs means they risk inadvertently straying from agreed client objectives.
While there are a number of third party providers available, such as ARC and FE Analytics, which offer comprehensive data for DFMs, not all firms are subscribed to these, making the initial due diligence process difficult.
"A well-defined checklist should arm both sides with the information they need to make meaningful comparisons.”
Greater transparency
Measures suggested by a panel of industry experts include using the same illustrative portfolio values and disclosing transaction costs.
Lawrence Cook, director of marketing and business development at Thesis Asset Management, said: “I do think it would help advisers if there were agreed standards to which all DFMs reported. For instance, DFMs could all use the same illustrative portfolio values and disclose the previous 12 months of transaction costs that would have been applied to a portfolio of each value.”
Gillian Hepburn, director of Discus, added: “While better ways of comparing charges and performance would help, they are usually not the only factors when it comes to identifying the most suitable proposition for a client.
“There should be more standardisation of the disclosure of costs within funds, including managers’ fees and other operational costs as well as dealing costs.”
Checklist
When asked if DFMs are making it easy enough to make adequate comparisons, Sesame Bankhall Group managing director, Stephen Gazard said: “Both DFMs and advisers are on a learning curve. DFMs can only answer the pertinent questions if they are asked them.
“However, there is always the questions of ‘unknown unknowns’ – areas that might be overlooked. A well-defined checklist should arm both sides with the information they need to make meaningful comparisons.”
The future?
Barry Neilson, business development director at Nucleus, said: “I think we might see more instances of DFM businesses which are either evolved or created to serve the needs of a small number of advisers.
“A number of advisory businesses who know each other quite well but don’t necessarily want to seek their own DFM permissions might get together to help set up and seed assets into a DFM.”
