■ Arm’s length: In the majority of cases, there need be no direct contact between the client/adviser and the discretionary managers, with all administration and communications being dealt with by the platform. This may be viewed as a positive or negative by the adviser, but does mean that all suitability responsibilities will lie with the adviser.
■ Service: Almost all service aspects of the arrangement will fall to the platform. This would include reporting, income payment arrangements, interest payable on cash, tax wrapper accessibility, trading and associated communications, online facilities such as valuations and transaction histories. From a service point of view the choice of platform is paramount.
■ Charges: When looking at the charges levied by the DFM, it should be borne in mind that almost all service and administration aspects are undertaken by the platform. The fee being paid to the DFM should only reflect the investment management side of the arrangement. Charges levied by the DFM can range from 0.2 per cent a year to as high as 1 per cent. Then there are additional platform fees, which are of a similar amount. As a rule of thumb, there should be little difference between the headline fee charged by a DFM for direct investment and the combined fee of platform and DFM for portfolios accessed through a platform. Also, do not forget those potential extra administration charges, either. Look closely at trading charges, if applicable – and see whether these are charged per client or per group of clients in a portfolio, as this can make a big difference to the total costs. Then of course there all those other little fees that could add up, such as cash transfer fees, probate fees, exit fees and so on.
■ Platform restrictions: It should be understood that constituents of portfolios that are distributed through platforms will be restricted to those investment vehicles that are available through that platform. While most managed portfolio service portfolios, whether direct or accessed through a platform, are made up of collectives, there will be instances where some investments (or share classes) are not available through the platform and a compromise investment is made. It is not likely that there will be major differences, but it should be borne in mind and the extent of compromise checked.
■ Performance: It follows that differing charges and differing portfolio construction, no matter how marginal, will lead to differing performance outcomes. When comparing performance, either the platform version of portfolios should be used, or if direct portfolios are used as a proxy, the differences should be taken in to account and results only used as a guide.
