07 Jun 2021
Selecting the right DFM is a crucial decision for an adviser. In this 3-part series, we reveal what our full and exhaustive rating process involves and what we look for when evaluating and considering a DFM for an RSMR rating.
We’ve been supporting the advisory market with our rated funds service since 2006 and in direct response to adviser demand, we produced our first DFM review in 2017. We now manage a rated list of 17 of the UK’s leading DFMs.
We went one step further in 2020 with the launch of the DFM Academy, a bank of in-depth research and information providing extensive fund profiles and factsheets for all solutions in the Academy, informative and insightful content and videos and topical news and ideas from the participating DFMs.
So far in the series we've focussed on the quality of the DFM in terms of both the firm itself and the investment process and services offered. In this final part, before our concluding summary and some basic tips, we turn our attention to the relationship between DFM, adviser, and client and suggest some points for consideration when assessing whether the service and support you are likely to receive will meet the needs of your business and clients.
- Does the firm have a local presence/branch office?
- Will you and/or your clients be provided with a dedicated team or contact?
- What access will you and your clients have to the portfolio managers?
In line with regulation, DFMs will now report quarterly to their clients, but the detail included beyond the required basic valuation varies firm by firm.
- In addition to the valuation packs, what other literature and supporting material will be provided?
- Outside of the scheduled valuation process, how easy is it to obtain an up to date valuation. Will you, the adviser, have access to an online portal? Will this just be for valuation purposes or will you have full transactional history?
- Similarly, will the client have access to a portal?
- What level of tax reporting will be provided and is there a charge for additional reports if required?
- Is there an app available?
- Can you obtain a consolidated firm-wide view of all your clients holdings and valuations?
- Does the DFM’s valuation system integrate with your back-office technology?
- How streamlined is the onboarding process and how much assistance will the DFM provide in this respect? Do they have a dedicated new business processing team for example?
- Are electronic signatures and verification acceptable to the firm?
In this 3-part series we've suggested a framework of quantitative and qualitative assessments that should provide a launch pad in developing your own due diligence process. However, the advisory business is still very much about people. You, and more importantly your clients, will have a long-term relationship with your chosen DFM partner and investing a little time in some face to face meetings with the key people in the DFM team that you're likely to be working with is a worthwhile inclusion in your overall due diligence process.
Having established a robust process for selecting a DFM, the journey has only just begun. A sound due diligence process should also include a framework for ongoing monitoring and review of the selected providers.
- Any changes to corporate structure, financial strength, capital adequacy etc.
- Changes to senior management and investment team.
- Changes/additions to product ranges and charging structures.
- Update from the investment team on the latest house views and positioning.
- Performance updates and comparisons to suitable benchmarks and peers, together with attribution analysis to better understand how these results have been achieved.
- Finally, we would strongly recommend a periodic sample audit of client accounts to ensure that the changes to asset allocation and positioning communicated centrally by the investment team are being actioned in your client’s individual portfolios in a timely manner.
We hope this short series has given you a framework around which to build your own due diligence process.
David Perkins, Investment Consultant at RSMR.
David sits on numerous investment committees and has worked in the financial services industry for 25 years.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
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