Many are still in the process of expanding the options they offer clients. DFMs continue to launch ethical model portfolios, even if differing ideas of what constitutes ‘ethical’ mean this would arguably be better suited to the bespoke treatment. Some continue to debut new propositions in the already crowded income market, most likely with an eye on the decumulation market. But when it comes to the growing mass of assets that must now be managed for clients who are at or beyond retirement age, it is bespoke, not MPS, that are being tipped as the winner.
Defaqto’s latest DFM Satisfaction Survey, released earlier this year, revealed a spike in the percentage of adviser investment business sitting in wealth firms’ bespoke portfolios, from 20 per cent in 2017 to 31 per cent a year on.
The company may not have full confidence in the data, describing its findings as “curious”. But Defaqto suggests that the complex nature of managing assets in decumulation has made a tailored approach more suitable.
“It is likely that decumulation investment pots could be larger, and the complexity of changing lifestyle as you get older may make these pots suitable for bespoke management,” Defaqto says.
As such, clients may find it more expensive to manage their decumulation needs, even if the outcomes produced by going bespoke ultimately prove better.
Some discretionaries such as 7IM are already seeing income as a route to growth. “One trend we are seeing is that those advising on drawdown are outsourcing to a discretionary service such as our Retirement Income Service, which is designed to provide firms with a more effective, scalable and sustainable approach to looking after clients income needs in drawdown,” the company notes.
As such, DFMs seem prepared to meet clients’ needs in this respect. But not all specialist portfolios necessarily have a bright future.
A recent report by the Office of Tax Simplification features suggestions that will already have grabbed the attention of some advisers, such as cutting the seven-year rule on inheritance tax. Yet the body also fired a warning shot at Aim portfolios, warning that business property relief was “not necessary to prevent [a] business from being broken up or sold in order to fund the payment of inheritance tax” when it comes to third-party investors in Aim-traded shares. While the OTS fell short of recommending a full crackdown on Aim portfolios, it could be a sign of things to come.
All shapes and sizes
Beyond a reassessment of their fees and specialist offerings, DFMs are also focusing on the best structures for clients’ assets. One popular approach for those with scale has been to use segregated mandates, whereby asset managers will establish and run a pool of assets specifically for the DFM in question. In such cases, the wealth manager can normally get preferential fees and a greater say in how investment parameters are defined.
