DFM assets on platform and the trend to outsourcing Monday 09 Nov 2015

DFM assets on platform and the trend to outsourcing

 

We are hearing consistently from advisers that they would like to see more DFM managed assets on platform. 

Advisers have well-founded reservations about outsourcing to a DFM given the threat to client ownership. On-platform portfolio services have gone a long way to assuaging their concerns. Holding DFM managed portfolios on advisers’ chosen platforms gives these advisers more control over client assets and in particular makes it much easier for the adviser to fire the DFM. Over lunch a couple of weeks ago, a senior bod at a wrap platform told me that they see advisers switching DFMs as often as every two years. 

We have been saying for several months that we believe the market will demand that more DFM-run money should move to platforms to bring it closer to advisers. Novia appears to have a strong lead in this respect. Novia’s DFM proposition is more automated than some. It is regarded as ahead of the curve because it offers access to a wide range of DFMs and also because it can automatically handle bulk rebalancing and can split fee payments. We also hear that Ascentric and Nucleus are well regarded for their DFM propositions. 

But will the wraps maintain their lead? Some suspect not, as lower-cost platforms follow fast and launch services to support DFM use on platform. And others are keen to catch up. Aegon announced a partnership with Brewins and Fidelity quietly introduced bulk rebalancing on model portfolios last month.  In our conversations with the platforms we understand that most are pursuing this market actively. This is seen as a core growth area and increasingly a hygiene factor for a modern platform. 

Advisers tell us that some 40% of their assets are outsourced (to model portfolios or bespoke fund picking), a figure that we believe has plateaued. Since the RDR we have seen a steady and strong trend to outsourcing fund selection but those relationships are established now and we are no longer seeing a trend to outsource ever more assets.  

We’ve also seen a shift to model portfolios from bespoke fund picking, particularly in the past year. Bespoke fund picking is still de rigueur for a certain slice of the top end, but model portfolios are generally much cheaper and now account for 46% of adviser assets and can be accessed from as little as £10,000. 

The next report in our series on fund distribution will look at multi-manager funds. 57% of advisers tell us that they use multi-manager funds (though we lump multi-asset and mixed income in this as well, as we find that many advisers don’t distinguish). Our goal is a better definition of the circumstances in which advisers use multi-manager funds. As you’d expect these are used for smaller account sizes. But to get the details, you’ll need to buy the research! 

On that, we are actively speaking with firms that offer multi manager and multi-asset products as well as with advisers that use these products. In return for a phone interview on the topic of multi-manager we’ll give you a free summary report. Not a bad deal for a cold November day.