If someone had told me 5 years ago that advisers would be queuing up to outsource the whole investment process to DFMs I’d have laughed you out of the room. I’m gobsmacked at the current trend.
My own career advising was relatively brief because I became heavily involved in PR, product development and direct marketing. This new role meant I had an awful lot of contact with very senior figures across the fund management arena.
We did what we did was because we understood clients and how it felt to lose money. We knew the money was someone’s hard earned nest egg.
Meeting fund management groups was an interesting experience. They neither think like investors nor talk in their language; they just don’t ‘get’ the people investing in their funds.
The investment management process is one of, if not the, most important aspects of your relationship with your client. To engage a DFM fundamentally and completely changes this relationship.
So why are advisers tripping over themselves to do this? I think they’re being naïve handing over one the most important things they do. They’re giving away the value of their business and control over the client’s outcome.
Outsourcing time consuming, low value activities is a principle I wholeheartedly agree with. Few things matter as much as we think they do.
However, outsourcing responsibility for investment management decisions is fundamentally flawed. What happens when the DFM doesn’t perform? You’re now an agent of the DFM relaying their excuses and defending their actions.
I appreciate it’s incredibly hard to give the desired level of service on an advisory basis. Equally it’s relatively easy to set up and chair your own Investment Committee and run your investment service on a discretionary basis (ask us how if you want to know more).
It’s not to everyone’s taste but it does mean that you create a vehicle to implement YOUR OWN views (rather than being an apologist for someone else’s), retain control of your business and increase its value.
Good businesses put their clients first; they may get rich in the process but the key motivator is always about doing the best for the client. I’m not convinced that outsourcing to a DFM puts clients first and I suspect it will ultimately be a transient fad.