Advisers are much more likely to outsource to discretionary fund managers when a client requires their investments to be run on an ESG basis, according to Platforum research director Richard Bradley.
He was speaking as part of a panel at Money Marketing Interactive’s virtual conference earlier today which discussed where DFMs can add value to planners.
Citing Platforum findings, Bradley said that planners are “much more likely” to opt for DFM services where a client wishes for ESG investing.
“It obviously becomes much more complex to manage a portfolio on that [ESG] basis,” he said.
“You can’t just drop all oil stocks from your portfolio and keep the same asset allocation as this has quite big impact, so we certainly see advisers turning more to DFMs with ESG focus.”
The panel also discussed the tool-box that discretionary managers work with, and what its breadth of offering means to planners in terms of perceived value.
Commenting from the audience, HA7 Consulting consultant Harry Katz said: “I really don’t see the value if a DFM only invests in collectives. Certainly not in OEICs and UTs. A few ITs are acceptable, but I would expect direct equities.”
City Asset Management chief executive Nicholas Coghill said DFMs should stick to their specialisation. “This is a classic example of sticking to your knitting. I think you set out and cover your expertise,” he said.
“Us as a house are experts when it comes to small cap, we run our own portfolios, and that is a very standalone service that the adviser market comes to us for.
“We’re not a large cap equity house, that’s what big fund managers do. People come to us because of our expertise is not just collectives, it’s assessing a multi asset framework there, and ultimately how they fit together to achieve the returns.
“So it’s not just collectives, it’s not just passives. For us, given our benchmarks of inflation and real return, we use a huge amount of investment trusts, that can be 20 to 25 per cent of portfolios and included – whether you love them or hate them – structured products in some of those on a discretionary basis.
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“That’s where our expertise is and that’s where we can generate returns. We’re not equity pickers and there’s a lot better houses in that than us and probably a lot better than a lot of the discretionary management houses there.
“It depends what you want to achieve. If you want to be an equity picker, then that’s obviously a very different risk profile for investors and a very different solution. And this is based really around a multi asset framework.”
Bravura Solutions business development expert Emma Napier argued that choosing the right investment vehicles is part of discretionary managers’ service. She said: “It is about diversification, sometimes equities and sometimes the collective – that’s what the discretionary managers are doing, looking at the right vehicles to present in a portfolio. And I think that is part of the proposition.”
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