DFMs on platform: Outsourcing investment expertise

6 min read 26 Jul 21

Sean Hawkins, Head of Strategic Partnerships, looks at the advantages of using the range of discretionary fund management and managed portfolio services available on the M&G Wealth Platform.

‘Do what you do best’ is a sensible maxim to live and work by.  Faced with so many calls on their time, financial advisers increasingly recognise the need to identify those tasks where they can add value for their clients – and those tasks that would be more efficient to outsource.

An activity that increasingly falls into the latter camp is investment management. Although plenty of advisers love the process of researching funds and other investments, structuring investment portfolios and overseeing their performance, many can see that handing this over to a specialist can be more efficient and reduce risk for their business.

Which is why the past decade has seen rapid growth in the services of discretionary fund managers (DFMs) and managed portfolio services (MPS). Consultants NextWealth’s June 2021 MPS Proposition Comparison Report Update shows the responding DFMs who offer model portfolio services now manage assets of more than £63 billion as at Q1 2021, up 11% over the quarter.

Choosing to partner with a DFM can offer a range of benefits including:

  • Freeing up advisers to focus on financial and tax-planning and ongoing client support
  • Access to specialist expertise and processes
  • Reduce risk in the business
  • The ability to outsource the whole investment management process to a team or range of teams of dedicated investment specialists
  • Access to a wide range of model portfolios tailored to different risk profiles and client objectives – helping firms to meet PROD and MiFID suitability requirements
  • Ensuring a swift response to changing market conditions without the need to seek advisory consent from clients (while also outsourcing 10% market drop notifications required under MiFID II rules, for now)

Another appealing aspect of using DFMs is that portfolios can be managed on an adviser’s chosen investment platform.

The M&G Wealth Platform was one of the first platforms to host DFM models. Today, we partner with around 100 DFMs ranging from the biggest portfolio managers to specialist boutiques – see which firms we already work with. This choice enables adviser firms to mix and match managers, construct their own DFM panels to meet governance and client segmentation requirements, and access almost any investment specialism a client might need.

For example on the M&G Wealth Platform, firms can partner with DFMs that focus on actively managed funds and those that combine passives or those that blend the two. Advisers can access the length and breadth of investment styles, whether that’s value or growth, long-term or tactical, UK or international – either way, there’s pretty much every base covered. Unsurprisingly, responsible investing options are on the rise, whether that’s impact, ethical, sustainable or ESG focussed. Then there’s all sorts of combinations of risk rated and volatility managed funds available. And whether your prefer DT, Synaptic, Finametrica or any other, you’ll have that choice.

As one of a limited number of UK platforms offering proper, intra-day exchange dealing, the M&G Wealth Platform also hosts a wide range of DFMs using exchange traded instruments (ETIs) such as direct equities, ETFs and investment trusts. This allows DFMs to deliver more sophisticated services like those who manage portfolios of AIM-listed equities, which can provide certain inheritance tax benefits to clients.

As the M&G Wealth Platform doesn’t charge for exchange trading, we’re one of the most cost-effective platforms to partner with to access DFMs that use these securities. I’m a big believer that there’s also a value to clients of having certainty over the costs they face, so without any deal fees, there won’t be any nasty surprises when their annual statement of charges arrives each year. Combined with our superior intraday dealing, the client not only benefits from better pricing on their deals and no execution cost drag in the portfolio, but it also allows the DFM to manage the portfolio exactly how they choose, rather than worrying about costs and execution quality. Over the years I’ve come across many DFMs that have been reticent to use ETIs in their portfolios because of they aren’t comfortable with the wider market’s execution costs and quality.

Alongside providing model portfolios, a number of DFMs can also construct bespoke portfolios for individual clients. This is especially useful in the responsible investment space where you have a client with very particular views on what they do and don’t want in their portfolio. The stock-level reporting that DFMs offer can also be of particular value to these clients where the use of funds just wouldn’t be able to deliver such a precise outcome. Ultimately, bespoke portfolios are all about finding a solution to very specific requirements, be that drawdown clients that need a particular ‘shape’ of income to meet their needs or a charity or trust that has some specific requirements or restrictions that the trustees have to adhere to.

The range of DFM services on the M&G Wealth Platform is broad and no doubt will continue to grow as we respond to adviser requests to include further investment capabilities on platform. To help firms with their outsourcing selection and management, we’ll soon be launching a tool that will allow model portfolios to be analysed in detail so you can track performance and assess a multitude of both qualitative and quantitative criteria including portfolio risks, the ESG and sustainability credentials of the portfolio, historical transactions and their impacts as well as a current and historical newsfeed directly related to portfolio

See if we already work with your preferred DFM or to find out more let us know who you would like to see on the platform and we’ll get straight back to you.