IFA guide to Discretionary Fund Management (DFM)
The APCIMS (Association of Private Client Investment Managers) website lists many investment managers, and there are some basic sifting facilities to help you get down to a short list.
If you are part of a formal or informal network of advisers, see if you can get a recommendation from one of your peers.
Some products such as SIPPs and offshore bonds run panels of DFMs, and it is likely that some basic due diligence has already been done on these.
EligibilityThere are some basic facts that you need to find out, to see if potential DFMs are going to be suitable for your client base.
Minimum investment. Not always cut and dried, as there may be flexibility if there is the prospect of many new clients, or on an individual basis if there is the prospect of more assets ie through extended family or potential inheritance. May be worth negotiating if you like the company but their stated minimum seems a little high.
If coming to a DFM with existing portfolios, will they take these on and trade in to their own style over time at reasonable dealing costs, and if they do this how do they treat, if at all, possible Capital Gains
Will they manage portfolios that are tax wrapped, such as bonds and SIPPS. DFMs like to retain custody of the assets and this is not always possible with some tax wrappers and providers. Some may offer advisory services without the need to retain custody of the underlying assets.
Will the company run portfolios to a requested benchmark.
Does the DFM use securities that are suitable for your clients eg will they run portfolios of collectives only
Both parties will want to be remunerated. What is the proposed split of commissions and fees. Does the DFM operate a sliding scale of fees based on assets under management, and does that sliding scale fit in with your own remuneration structure?
Do they deal with fund managers on institutional terms? If they do, this means that adviser and DFM can get paid with less detriment to the client.
If they do not have access to institutional funds, can they demonstrate that they deal with fund managers on favourable terms ie no initial charge and perhaps rebates on annual charges. Ask for examples. Dealing at NAV plus a fraction of a percent (say 0.25%) initially would be reasonable. Getting close to 50% rebate of amc would also demonstrate some negotiating skills.
Any other costs such as set up fees, exit fees and transaction charges ?
Find out what the cost of transferring stocks is. In the event that your chosen DFM does not meet your requirements and you want to switch to another, you do not want to be heavily penalised with transfer costs.
Are all reports included in the fees? Does the client have to pay extra for tax reports (CGT and Income).
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