Discretionary fund managers (DFMs) need to considerably up their game on transparency if they are to meet the ongoing trend for advisers to outsource investment decisions and the regulatory demand from Mifid II, research has found.
According to an independent study by consultancy the Lang Cat, many DFMs are opaque when it comes to portfolio construction and investment performance. This comes as a Schroders’ survey found an increasing number of advisers are looking to outsource the investment process.
The Schroders Adviser Survey 2017, published this week, quizzed 250 UK advisers and found a decline in the percentage of those not looking to outsource portfolio management, from 48% in 2016 to 42% this year. In other words, more advisers are looking to outsource their investments.
And when it comes to outsourcing to a DFM in particular, it found 21.49% expect to pass over the bulk of their assets (51-100%) to a third-party during the next year.
On and off-platform
Part of the problem, as Lothar Menthel, Chief Investment Officer at Tatton Investment Management, sees it, stems from differentiating between on- and off-platform DFM services.
He believes being on-platform is more transparent because from a fee perspective an adviser can get an OCF quote on any portfolio that is on there, whereas that service is hard to ascertain off platform.
Further to Barratt’s “secret sauce” point, Menthel says when it comes to investment performance, many off-platform DFM services pride themselves on being bespoke to client requirements (the secret sauce) and say because of this, it is not possible to show representative performance.
