He says: “We’ve got roughly 45 DFMs signed up to use the platforms, and typically they will offer their model portfolios on our platform, so we can hold the model portfolios and make them accessible to the adviser.
“Most of the new money on the platform now goes into model portfolios. It is approximately 90 per cent of money that comes into the platform that goes into models. There are two ways the models can be run, the IFA will run it themselves or the DFM will run it, and the DFMs are taking an increasing share of that market.”
Parmenion’s Mr Mein agrees it is a growth area as most advisory firms will be exploring the possibility of outsourcing their day-to-day investment management requirement to third parties.
But he adds: “Importantly, platforms are only one means by which such services can be accessed. Many DFMs have the capability to offer service directly to IFAs rather than via the additional costs associated with hosting on a third party platform. How this develops will be interesting to monitor.
“It is hard to see advisory businesses developing without having a highly flexible CIP embedded into their core service offering. Increasingly bespoke services will be offered by DFMs seeking to offer CIP services to progressive financial advisory practices. These may be in conjunction with platforms or otherwise. Either way, advisers are likely to be increasingly in the driving seat in demanding services and costs from those supplying services to their firms.”
Nyree Stewart is deputy features editor at Investment Adviser
Issues to consider:
According to the FSA’s finalised guidance on assessing suitability for replacement business and centralised investment propositions (CIPs), which include DFMs, there are some key issues firms should consider. It states poor outcomes can occur if firms, in particular, fail to:
• Consider the needs and objectives of their target clients when designing or adopting a CIP
• Consider whether the CIP is suitable for each client on an individual basis
• Establish a robust control system to mitigate risks which might arise from the CIP
Source: FSA
