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Advisers should look beyond investment returns when selecting a DFM


A 'worrying' number of advisers are still measuring discretionary fund manager (DFM) performance suitability on investment returns alone, according to Wellian.

The firms says that many advisers still struggle with conducting sufficient due diligence on DFMs and are subsequently partnering with unsuitable firms based on factors such as overall returns.
Wellian's Chief Investment Officer, Richard Philbin (pictured), believes that investment returns typically change from one provider to the next within a relatively short space of time and therefore should not form the sole basis of any decision to partner with a DFM.
Philbin says: 'Historically, investment returns and short term performance were considered to be far more significant factors in determining the overall success of a DFM portfolio. However, in today's turbulent market conditions, other factors such as risk profiling and asset allocation should form a far greater part of any due diligence process.'
Similarly, other questions such as location, access to the investment manager, transparency on performance and how much control the adviser retains over the client relationship would provide a far more suitable foundation from which to conduct due diligence on a potential DFM partner, according to Wellian.
Philbin adds: 'There are many factors aside from performance to take into account when measuring DFM portfolios. However, the question of control should always be top of the list for inclusion in any due diligence questionnaire. From our own research, we already know that most advisers' main concern when it comes to outsourcing is losing control of their client relationship and being cut out of the process altogether. Whilst this is often the case with many DFMs, Wellian never deals directly with the client, leaving the adviser totally in control at every stage of the process.'

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