Mr Beer argues that the DFM market has grown much more competitive in recent years, helping to bring down costs and provide solutions for even the most fee-conscious adviser. Not everyone agrees with this assessment.
"While the intention may have been honourable by outsourcing to expensive active fund managers or DFMs, they may be seriously damaging their client’s wealth,” says Paul Gibson, managing director of Granite Financial planning.
"Total expense ratios for active funds have remained stubbornly high, as highlighted in the recent FCA paper on the asset management industry, and turnover costs, if known, can substantially add to these.
“Advisers outsourcing investments need to be very mindful of charges as these can be eye-wateringly high if not carefully monitored. Fees are increasingly being scrutinised and if an IFA is outsourcing investments and not offering a full financial planning service, including cashflow modelling, I would not be surprised if clients begin to question their value.”
Cheaper alternatives
Like many of his peers, David Gibson, chartered wealth manager at Gibson Financial Planning, believes there is little value left in advisers dedicating endless hours of their day to picking funds.
But he is also conscious about the costs of DFMs, which is why he has devised a different strategy aimed at satisfying both his clients and business needs.
Gibson Financial Planning pays industry consultant Finalytiq to sit in on the firm’s investment committee, where it chips in with research and analysis ideas.
Mr Gibson claims that this external expertise, which is billed directly to the company, rather than charged to each client’s portfolio, has provided useful input and drastically reduced management fees.
“We run in-house model portfolios set up and monitored by our investment committee,” he says.
“The guy we pay to sit on our investment committee, Abraham Okusanya, assists with our research and we pay him directly.
"In our case, we specifically were interested in reducing further the investment costs of our portfolio for our clients. Since Mr Okusanya came on board, the portfolio management fees have almost halved."
Daniel Liberto is a freelance financial journalist.
