PA ANALYSIS: It is time to reimagine the IFA / DFM relationship 03 June 2016

PA ANALYSIS: It is time to reimagine the IFA / DFM relationship

Growth in IFAs outsourcing investment services to DFMs continues apace or is indicative of ‘X’ or ‘Y’ have been common refrains across the trade press in recent months.

It is indeed the case that advisers are going to be put under more pressure from clients to both perform and justify their fees, but, likewise, they should be putting more pressure on DFMs to justify their own performance.

And, this is where the change needs to occur. As David Gurr, the founding partner of due diligence consultancy, Dimiminis told Portfolio Adviser on Thursday, “It is not just the IFA’s that need to spend more time on scrutiny, industry wide there needs to be a better understanding of how the two parts work together.”

More importantly, he added, the sector needs to stop thinking of discretionary investment management as a product.

“Because the sector evolved from a product-based environment, it is how we have tended to see things. But, the industry is evolving and the sector is increasingly service-focused. The sector needs to start thinking of DIMs as offering a discretionary investment management service, rather than a discretionary fund product.”

While it may seem a semantic difference, the words are important to ensure that everybody is clear on what exactly they are paying for and what they should expect in return – it is also for this reason that Gurr makes the case to stop using the word ‘outsourcing’ which, he says opens up space for misunderstanding on both sides for who exactly is responsible for what.

As is evident from the Nucleus census, the use of DIMs is an ever more common arrow in the modern adviser's quiver, but each arrow is only as good as the fletcher that made it - to pull the metaphor to breaking point - and both archer and fletcher have a role to play in ensuring it hits its mark.