What every DFM wants from a platform

investment - Copy.jpg

For adviser use only


Discretionary fund managers (DFMs) provide an increasingly popular service to financial advisers looking to outsource investment management. As the market grows, it’s increasingly important that the platforms they use are set up to help them, and the advisers they partner with, access the services and investments they need.

DFM model portfolios now have combined total assets of between £10.5bn and £12.5bn, according to research from Platforum*. 

The same research says there are now 75 DFMs available on at least two different platforms. Considering the first on-platform model portfolio only became available in 2009, this shows how quickly the market has developed.

Indeed, according to Defaqto** there are more DFM-built model portfolios available on platforms than there are available directly from DFMs.

DFMs are an increasingly important feature of a platform’s overall proposition and for the arrangement to work well DFMs need platforms to offer:

  • A wide choice of investments
  • Excellent rebalancing and portfolio management functionality
  • A simple remuneration process

So, as part of doing due diligence on the DFMs they offer, it’s important for advisers to ask their chosen DFMs what they want from a platform.  

Investment choice

One of the major considerations for any DFM looking to build and manage on-platform model portfolios is the range of investments available. Many DFMs recreate similar versions of their off-platform portfolios when setting up on-platform propositions. They can only do this if the platform offers them access to the funds and investments they already use.  

It’s the nature of the DFMs specialism to offer some ‘out of the ordinary’ investment options that many platforms wouldn’t necessarily offer as standard so, while a wide choice is important, so too is the speed with which a platform can on-board specific investments that a DFM needs.

Platforms that already have a wide choice of OEICS, ETFs and other investments will be better placed to meet the needs of most DFMs.

But, those that continually add to the choice available and are willing to work with DFMs to make particular funds that they request available quickly, will be especially appealing.

Rebalancing and managing on-platform model portfolios

Model portfolios have to be rebalanced on an ongoing basis and, to make sure the process is as efficient as possible, platforms must offer a number of tools to assist DFMs.

For example, where automatic rebalancing options are available, they can be set up on a monthly or quarterly basis by DFMs to make the process easier.

DFMs also want the ability to manage their on-platform model portfolios in bulk across multiple clients and adviser firms. This bulk management functionality means it’s not necessary to make changes at an individual level, making the process quicker and reducing the administrative burden on DFMs.

In addition to having tools to allow them to manage their on-platform model portfolios easily, DFMs also need the ability to analyse their performance. Model portfolio evaluator tools let DFMs assess model portfolios against a range of benchmarks, at either an individual or portfolio level. The more sophisticated the evaluator tools, the easier it will be for DFMs to work effectively on a platform.

Remuneration process

Different platforms have different ways of remunerating DFMs and advisers. Where fees can be paid by the platform, directly to the adviser and the DFM, in the appropriate portion, it makes it more convenient for both parties.

Such an approach adds to the appeal of a platform by reducing the administrative burden and speeding up the remuneration process for all concerned. 

Platforms are becoming the distribution channel of choice for many DFMs

Although there are still some DFM firms that don’t offer their solutions on a platform, Defaqto says there are others that only make their discretionary solutions available through platforms.  

Indeed, in May this year, Defaqto stated:

"This latter category is the fastest growing with 25 out of the 61 [on-platform managed portfolio services] we cover, only available through a platform."

As DFMs become a more prevalent and important part of what platforms offer, platform providers and advisers need to ensure that they offer the toolset to meet their needs.

 *Platforum, UK Fund Distribution: DFMs on Platforms, April 2016

**Defaqto, DFM on a platform – an accident of history? May 2016