DFMs

Recent investment trends spell good news for discretionary fund managers. The rise of ESG portfolios and passive portfolios has given a boon to many such businesses, as advisers seek more specialised services for the first time. But meeting the needs of these adviser clients is no easy task.

The digital developments of the past 18 months apply to DFMs as much as anyone: e-signatures are now crucial to a provider’s chance of success. At a time of significant stress and sometimes dramatic market moves, the demand for regular communication regarding investment decisions – which can then be passed on to clients – has also increased.

And with advisers’ back-office systems growing ever-more sophisticated, the ability to integrate with those systems is also of particular importance.

Then there are structural questions, such as that of cost. The DFM market is seeing greater price pressures than any other part of the retail investment world at the moment, as lower cost model portfolios battle it out for advisers’ affections.

Of course, price is just one part of the equation, particularly in an age when more clients are interested in the sustainability of their investments. That implies a certain level of bespoke service, which brings its own challenges for providers.

These shifting dynamics mean there is more upheaval in the DFM world than elsewhere: anecdotally, some advisers are now reconsidering some of their provider choices, particularly in the era of on-platform portfolios where switching is easier than it once was.

While adding new providers may have been a difficult decision in 2020 – assessing new providers on a purely remote basis might have felt like a bridge too far for some – this year is different. The return of face-to-face meetings, coupled with all the factors described above, could spark more switching in the months ahead.

But from a purely investment perspective, the main tenets of good service remain the same: the ability to demonstrate and communicate a coherent and consistent approach to risk management and asset allocation. This year’s five-star winners have convinced advisers they have what it takes to deliver the most appropriate returns for clients.