The importance of trust in DFM decisions

Trust is a key component of any adviser business. Clients must trust in the decisions made and believe that their adviser is working in their best interests. The impact of bringing a third-party investment manager into the mix is an aspect of the Discretionary Fund Management (DFM) model that the Rathbones Value of DFM report set out to examine.

When surveyed, advisers who had not yet made the switch to DFM revealed that they were concerned they would struggle to justify their own fee to clients post-adoption. With no direct responsibility for managing portfolios, would clients still trust that they were doing enough to earn their hourly rate?

More than a quarter (27%) of advisers also said they were worried the discretionary fund manager could try and ‘steal’ their clients, if they made the switch.

These fears were part of the reason for the publication of the Rathbones value of discretionary fund management report. Examining the preconceptions of DFM, and analysing their impact on adviser businesses for the first time, would, it was hoped, shed light on the potential changes a third-party investment manager could bring.

The aim was to replace conjecture about DFM with stronger anecdotal evidence as to the real impact on advisers, and their clients.

In terms of client relationships, the report found that 55% of ‘adopters’ – those advisers with DFM support - said they felt their clients trusted them more post-adoption. A further 63% said the quality of client contact had improved and 45% reported an increase in client meetings with fee-paying clients.

Adopters surveyed also fed back that the majority (97%) of clients were happy for their portfolio to be managed by a third-party investment manager.

Making the judgement as to whether a discretionary fund manager will be the right fit for a business is among the most important considerations for an adviser when deciding whether to adopt a DFM. Maintaining good relationships with clients is a vital part of an adviser business and rocking the boat can often seem a daunting prospect.

While there are no guarantees that DFM will benefit an adviser business and client relationships, it does provide a starting point for discussions as to whether discretionary fund management will prove the right fit, and ultimately the best decision, for an adviser business.

We hope this report will help advisers make more informed and less daunting decisions about using third-party investment managers.’  

Download the third chapter of our DFM research report - The value of discretionary fund management.