DFMs running model portfolios have been a key part of the UK platform market for a number of years.
It is a core part of many adviser firms’ client offering and can provide an excellent investment solution for a wide range of clients who wouldn’t otherwise have access to discretionary managers.
In the offshore platform market, however, the increased due diligence and risks of working in multiple jurisdictions inevitably creates a much higher barrier to entry for bespoke DFM, often starting at $500,000 (£389,375, €446,357).
The platform/DFM combination immediately opens this up to a much wider range of investors.
There is also a huge opportunity in the trust market where, again, access to DFMs is only available for the larger trust clients leaving many crying out for sophisticated portfolio management.
Comparison challenge
One of the challenges that exists in the UK, and is also now apparent in the offshore market, is how an adviser can compare the DFMs available on a platform.
Typically, they will need to go to each DFM to get individual factsheets to compare performance. These all have different assumptions, are often for different periods and don’t take into account the features of the platform.
For example, how does the dealing process work? When does the DFM update their models on the factsheets vs the platform? Do they assume prefunding of trades? When is income credited to the portfolio? Does it assume reinvestment into the fund or into a cash account?
All of these things can, and do, have an impact on performance.
Platform support
The bringing together of DFMs on a platform helps advisers better compare which managers are most suitable for their clients.
Novia Global has developed a report to track model portfolio changes as they happen on the platform. It takes into account dealing cycles and when and where income is paid, which the international platform believes provides a very quick and easy way to compare DFMs.
Further enhancements that take risk and attributional analysis into account will be added in future.
