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IFAs back standardised approach to measuring risk reward on DFM portfolios


Almost two thirds (64 per cent) of intermediaries believe that since RDR it has become increasingly important to adopt a standardised approach to reviewing discretionary fund manager (DFM) portfolio performance relative to risk.

The study by Investec Wealth & Investment found that nearly three in five (58 per cent) IFAs use a third party to conduct portfolio risk assessment either exclusively or in addition to some level of in-house analysis. 
The most popular third party providers are ARC and the IMA, each used by 16 per cent of advisers. 
Almost a quarter (24 per cent) of advisers said they were satisfied or very satisfied with the quality of assistance they receive from their external provider compared to just five per cent who are dissatisfied.
The study shows that on average it takes advisers nearly two hours to review a client portfolio’s performance relative to risk, repeating this process for seven clients every week.   Therefore on average an adviser spends over 10 hours a week analysing DFM portfolios according to their risk versus performance.
According to the findings, DFMs’ risk definitions play a crucial role in advisers’ section process: 37 per cent of IFAs rated DFM’s risk definitions as essential or important and a further 30 per cent said they had some influence on their decision.  This compares to 19 per cent of advisers who claimed they had no impact on their selection process.  
Mark Stevens, head of intermediary services, Investec Wealth & Investment, says: “Our study clearly shows how advisers have felt under increasing pressure to measure risk relative to performance in their DFM portfolios since RDR.  Given this, it is not surprising that risk definitions are an influential factor in deciding which DFM to partner with. 
“Whilst most advisers use a third party to help with this analysis, the findings show that collectively a significant proportion of time is expended doing this in-house. There is an argument that the adviser’s time would be best spent meeting with and advising clients, and as a result we would expect the number of advisers who outsource completely to increase over time.
“It was reassuring that advisers rated ARC as one of their chosen third party providers as we have subscribed to their independent measurement of our portfolios for some time. This has ensured our financial adviser partners have enjoyed the benefit of ARC's unbiased performance data without the burden on their time and resource of in-house monitoring.”

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