DFM analysis shows direct investment shortcomings
Almost a third of discretionary fund managers (DFM) cannot deal with direct investments into structured products, according to an analysis of the market.
Research by Defaqto suggests 30% of managers can not meet this demand, compared with 7% who are unable to access cash and 40% who can not invest directly in equities.
More than 40 DFMs were included in the analysis, and, of the alternative investments, private equity was the least-serviced area, with only 38% allowing direct investment.
Of the traditional investments, only 31% of DFMs permitted direct investment into property.
At a time when a rising number of advisers are assessing the possibility of outsourcing to a DFM, Fraser Donaldson, Defaqto fund insight analyst, said it was important for the managers to understand the dynamics in the market.
"This understanding will be particularly important over the coming year as activity in the outsourcing space will inevitably become more intense as retail distribution review implementation approaches - placing greater pressure on discretionary managers to stand out in order to appeal to target advisers," he said.
Although he accepted many IFAs would not be looking to access any direct investments through their DFM, he nevertheless stressed the importance of getting a broad understanding of the different services they offer, including their flexibility.
"Its down to the adviser to look at how the DFM runs these solutions and work out whether it is compatible with their own thoughts," he added.
The analysis comes from a new tool Defaqto has launched, as part of its Matrix product research application, allowing users to compare the different service propositions offered by DFMs.
Among the criteria it takes into account is the proportion of discretionary business that firms receive through advisers, as well as the fees and charges applied, including initial charges, service fees, transaction fees and performance fees.
| Investment type | % of DFMs allowing direct investment |
| Traditional investments | |
| Cash | 93% |
| Equities | 60% |
| Fixed Interest | 60% |
| Property | 31% |
| Alternative investments | |
| Structured Products | 70% |
| Hedge Funds | 62% |
| Derivatives | 55% |
| Commodities | 42% |
| Private Equity | 38% |
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