MPS are more of a mass market offering, and there may be little or no face to face communication with the client. However, some elements of service still remain and it is up to the adviser and client to decide how important these service elements are.
Reporting is likely to be in depth, including all holdings within the portfolio. Transaction histories and explanations of why transactions had taken place would also be included. There may also be some flexibility in frequency of reporting via online functionality.
The majority of DFM’s now facilitate online views and valuations of client portfolios updated daily. These may also include some additional information on transactions and the reasons for them.
Engagement
We would always recommend once arriving at a short-list, a certain amount of engagement with the discretionary firms is required, before coming to a final decision.
Engagement with the firms will often help advisers come to their own judgements and answer some of the softer issues such as:
• Adviser support: literature, marketing campaigns, support of client events
• Adviser charging flexibility
• Personal relationship - crucial as could be a long term relationship
• Provision of MI
• Additional requirements and flexibility
• Testing some of the answers received through the due diligence
It is important the adviser finds it easy to do business with the DFM, trusts them and feels they will support their client relationships.
Blinded by the light
Discretionary firms are by their nature self-contained investment companies. They take great pride in their capabilities and as such can occasionally suggest they can do almost anything. It is important to ask the right questions to ascertain what a client should expect when investing in an MPS.
For instance if you ask if they invest in structured products, derivatives or, say, private equity, the answer will invariably be yes, based on having done so at some time in the past.
To manage client expectations it is better to ask what they are invested in now. The reality is that most, although not all, populate their MPS portfolios with collectives.
All in all, the above has barely scratched the surface, but should be a good basis for starting good due diligence. If you keep in mind that the ultimate goal is for both adviser and client to have confidence in the selection process, this should lead naturally to the right questions to ask.
Remember, there are some 52 MPS solutions (as covered by Defaqto), 114 if you include ‘on platform’ propositions, so if any are slow or reluctant in giving information, do not waste time on them, simply move on to the next.
