This article was originally published in the April 2021 edition of MoneyMarketing.
DFMs or DIMs (now also known as DI/FMs) should not be considered as FSPs that are shrouded in some form of unknown mystery! They are quite simply Investment Managers, also known as Asset Managers, who provide a suite of investment support and intermediary services to financial advisers. Where things do become complicated however is in selecting one, as whilst they are ‘quite simply Investment Managers…’ the differences between DFMs are vast – same, same but different!
In a nutshell there are broadly four types of DFMs across the investment industry:
- Retail
- Corporate
- In-house
- Advisory
Retail DFMs usually take on the form of an independent business with no corporate ties restricting or guiding them towards house or internal focused client solutions. These DFMs are typically owner managed, independent and agnostic in their approach to providing their services to advisers. Their services could include a broad base house view suite of portfolios for advisers who want to take the guess work out of picking funds. But many will also offer true tailored/bespoke solutions designed in a collaborative manner to meet the specific needs of an advisers’ book of clients, including solutions to cover local, offshore, pre and post retirement needs.
Corporate DFMs usually operate from one of the larger life/investment houses who support a large, tied agency sales force, but also offer their services to advisers. The adviser will typically get the internal house view solutions of the Corporate (or their multi-manager funds) as solutions that might get branded for them to create a framework of perceived independence for the advisory practice.
In-house DFMs are typically associated with larger wealth and advisory practices with multiple advisory branches (possibly having local and offshore capabilities) where they have the means to set-up a separate business division within the group that is staffed with independent KI’s and Rep’s to the advisory business. This division will focus on investment management activities to build solutions for their internal advisory division, the investment manager will focus on investment management under intermediary services and not on advice activities.
Advisory DFMs would typically be a small practice that has both a CATI and CATII license where the advice and investment management are fulfilled by the same party. We suspect that this category will come under scrutiny from the FSCA in its rollout of RDR and their stance of TCF.
As you can imagine, the above DFM categories will without a doubt result in a multitude of differing services and capabilities. Besides the different portfolio construction options (core satellite, building blocks, multi-asset/split funding, active & passive, or combinations of all of these) each DFM will have a different investment thesis and method of choosing managers, funds and other financial instruments. These are all things an adviser needs to consider and be comfortable with when deciding upon a partner. Other questions should go towards:
- Portfolio optimisation and risk management – does the potential DFM partner utilise optimisation tools to mathematically/quantitatively provide conviction to position a portfolio to a client?
- Will the DFM partner enhance an adviser’s client value proposition through providing a Centralised Investment Proposition?
- Does the DFM have the ability to reduce overall client costs, or will there be a higher fee for this level of expertise?
So – same, same but different definitely applies! MitonOptimal are a Retail DFM by definition that pride ourselves on providing our adviser clients with peace of mind through our flexible and holistic investment management service offering.
George Dell
Head of Business Development
For more information about our DFM Offering, please email us at mail@mitonoptimal.com
The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness. MitonOptimal South Africa (Pty) Limited is an Authorised Financial Services Provider Licence No. 28160, regulated by the Financial Sector Conduct Authority (FSCA) – Registration No. 2005/032750/07.MitonOptimal Portfolio Management (Pty) Limited is an Authorised Financial Services Provider Licence No. 734, regulated by the FSCA – Registration No. 2000/000717/07.