A recent article in Professional Adviser talked about the “commoditisation of DFMs”. While there’s a good balance of views in the article, it also includes some sweeping assertions that should be addressed. Notably, categorising all investment managers under the DFM banner highlights an oversimplification of what is available to advisers and ignores the fact that there are DFMs out there (admittedly not very many) who offer genuinely different propositions.
Certainly, within the DFM space, there is an increasing focus on price, but I would contend that this is mainly being driven by DFMs who find it difficult to differentiate themselves from their competition.
In a recent Lang Cat webinar, Novia’s Bill Vasilieff summed it up well when he said: “People who compete on price do so because they have nothing else to offer”.
In another interview, Andy Bell from A J Bell was quoted as saying that firms can compete on price, service or product but can’t compete on all three. I fully agree with his view, but that doesn’t seem to stop some providers from trying, which (in my view) tends to result in the lowest priced ones struggling with service and product.
Benefits not burden
A phrase in the article suggests that outsourcing is popular with advisers because “for a fee they can offload the burden of investment”. I don’t subscribe to the notion that investment is a burden for advisers, rather that more advisers recognise that there are benefits for their clients (and their own businesses) to delegate this aspect to experts who are giving the task 100% focus. This allows them to focus on the financial planning that their clients appreciate so much.
The key is what the relationship looks like between adviser and DFM/DIM: we believe this should be done on a partnership, rather than supplier, basis and backed up with technology and tools that lead to efficiencies - helping advisers to provide an even better service to their clients and run more profitable businesses.
The best DFMs deliver real value to advisers and their clients and any fee should be evaluated within that framework, not as a commodity product.
A big risk for advisers who focus on price over value is that they will end up putting suitability at risk. A ‘pile them high, sell them cheap’ approach is unlikely to have the finesse to suit all clients, and shoe-horning clients is one of the deadly sins that the PROD regulations are designed to stamp out.
According to the latest Schroders Adviser Survey, only two thirds (66%) of advisers are segmenting their client base, with 70% still segmenting based on assets. It’s been over three years since the PROD regulation came into force so it appears there’s still plenty to be done.
Advisers who want to do the best they can for their clients, avoid falling foul of the regulator and realise tangible business efficiencies should ignore the DFMs that are promoting their services solely on the basis of being cheap.
Instead, they will benefit more from focusing on the value they can gain from a full and fruitful partnership with investment managers who put big ticks in both the service and product boxes.