Rathbones seeks evidence in DFM debate

UK manager Rathbone Investment Management has launched the first of a series of reports that aim to investigate the value added and impact of growing use of the DFM (discretionary fund management) model, particularly in regards to its use by financial advisers.

The Rathbones Value of discretionary fund management report notes that DFM has “boomed” over the past decade, with some 40-50% of the (UK) financial adviser community estimated to be outsourcing to DFM, which Rathbones estimates will rise to 60-70% “over the next few years”.

The adoption rates also point to a growing segmentation of advisory businesses that tend to rely on the outsourcing model: adopters of DFM tend to be larger – on average double the size of firms defined as “non-users”.

Also noted is that more than half, 54%, of users of DFM “also reported a marked increase in client bank numbers since adoption and were found to be able to charge around £10 more per hour for reviews”.

“Firms that had adopted DFM reported 14% more clients per adviser than non-users and revenues that were around 18% higher at £220,716 per adviser against £186,606 per adviser in firms without outsources support.”

Anotehr key finding is that using DFM tends to free up advisers to spend time with clients, generate new business and cut time spent on managing client investments; in turn this suggests that those using DFM are able to spend more time on “revenue-generating activities such as meeting with clients” compared with non-users.

Of those using DFM, some 12% of the surveyed advisers said their pay increased by 20%.

However, the research also points to valid reasons why advisers are not adopting DFM. One is that they fear clients will be effectively stolen, while others fear loss of control over the investment value chain. And then there are those who consider the cost of DFM too great.

Lowering costs could sway some of these non-users, the report suggests. Transparency and wider choice of products are other factors that, if improved, would cause more financial advisers currently not using DFM to reconsider.

Performance remains the key factor when searching for a suitable DFM solution, with other key factors being the investment process and ability to personalise the service.

The findings are based on research conducted by CoreData of some 100 advisers on an anonymous basis.

Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

Read more from Jonathan Boyd

Close Window
View the Magazine

I also agree to receive editorial emails from InvestmentEurope
I also agree to receive event communications for InvestmentEurope
I also agree to receive other communications emails from InvestmentEurope
I agree to the terms of service *

You need to fill all required fields!