Finding a Suitable DFM to Match your Advice Model
DFM, discretionary fund manager. Many opinions are thrown about upon the topic of DFM’s, and which you get depends on who you’re talking to.
For every DFM enthusiast, there will be a pessimist ready to share their story of disappointment. But most disappointment comes from the failure of asking oneself – is the DFM appropriate for my advice business?
But what makes a DFM fit? Some elements are quite arduous, and others are much softer. This article will focus on the softer elements.
While obvious, what do your clients expect from their relationship with your business and the DFM? Many customers just care for performance and are content on having minimal interaction with the DFM. They generally just care about growth and returns, like old time stockbroker-type relationships. With such a relationship, personalised service is not required, and the client simply expects results.
On the other end of the spectrum, some clients sit on the high interaction side. These clients usually require lots of hand-holding and reassurance. They want lots of information on the status of their investment, how it is growing and to receive a sense of security. Not interacting with the DFM on a quarterly basis would be disconcerting to this type of client.
Most clients you will find sit somewhere between the extremes of this spectrum, however. A decent amount of interaction and consistently good performance in line with the business they signed up to is what most will wish for.
Figuring out where the client sits is a large part of the battle, but ensuring the fit is appropriate with the advice model is where problems have historically arisen. Below are some questions to consider.
- Who owns the contact strategy for the client? Confusion can be easily brought about when the DFM contacts the customer more than the adviser. It should be clear whose client the customer is.
- Is the correct use of language being used concerning risk? Clients may not always be comfortable with understanding language differences when it comes to scales and descriptors. Consistency in the language is key for a long term relationship, most clients won’t be comfortable with an explanation that a “5” in risk for the adviser means a “3” for the DFM or that cautious and moderate mean the same thing.
- What type of service adds value for the client base? Ensuring that the clients’ expectations and needs are met is key, equity trading and derivative portfolios may sound impressive but might not be appropriate
- Does the DFM understand how the adviser operates? Explore the end to end process and dig beneath the sales pitch, ensuring that a new partner can be entrusted with a clients’ money.
Ensuring these basics are met before diving deeper into a DFM relationship may seem obvious, but lack of understanding alignment can easily cause DFM relationships to crumble.