Selecting a DFM

  • |
  • 35 mins 17 secs

Tutors:

  • Simon Cooper, Business Development Director, Cazenove Capital
  • Nick Georgiadis, Head of DFM Team, Cazenove Capital

Learning outcomes:

  1. The main different types of outsourced solutions available to advisers
  2. The core components of an outsourced solution, from investment philosophy through to back office compatibility
  3. How to identify and manage potential conflicts of interest

Channel

Latest
asset.tv
London • Harpenden
Tel: +44 (0)1582 764000

New York
Tel: +1 212 661 4111

If you have found this report informative and would like further information please email asset.tv at [email protected]
PRESENTER: The range of outsourcing options offered by discretionary fund managers is becoming ever wider. So what are some of the key things to consider before committing client money to one of them? For this learning unit, I caught up with Simon Cooper, Business Development Director, and Nick Georgiadis, Head of the DFM team from Cazenove Capital to find out more. The learning outcomes are an overview of the different types of outsource available to advisers; identifying the core components of an outsourced solution from investment philosophy, through to back office compatibility; and identifying and managing potential conflicts of interest. Well, when the pair came into the Akademia studio, I began by asking Simon Cooper how much further the investment outsourcing trend has to run.

Well, Simon Cooper, this talk about outsourcing to DFMs, it’s been going on for a number of years. How much further had the trend got to run?

SIMON COOPER: Well I mean as you rightly said it’s been going on for at least 10 years, but actually what’s happening is you can see it continuing even further, but maybe in slightly different guises. When we first started as a team several years ago we were purely doing bespoke portfolios outsourced by financial advisers; now all a sudden there’s lots of talk about model portfolio services, or there’s risk rated funds. So the options that are available are now much broader than they were when this first started. So in fairness it’s probably got a lot of room to run in the coming years.

PRESENTER: So you’ve developed your service and product offering as much as anything else.

SIMON COOPER: Yes, you have to because, and I’ve said this in the past, the financial adviser morphs every day. And a company like ours has to be able to morph with it, otherwise you get left behind. So we as a company have developed an awful lot of different services for the adviser industry, and so far that’s working. But it doesn’t mean that we stand still, we have to keep coming up with new ideas. And actually learning from the adviser firms that we work with on what they’re looking for. So we spend a lot of time actually, rather than talking about their clients, actually talking about their business, and what they want to do with their business and which way it’s going to move moving forward so that we can actually move with them and help them.

PRESENTER: And Nick, from an investment perspective, are there new reasons coming up as to why advisers should think about outsourcing to a third party, or is it just more of the same?

NICK GEORGIADIS: Well I think the core investment philosophies perhaps remain the same. But I think it is an industry of innovation, we’re constantly looking at new areas in which we can invest. And I think the holy grail is to find uncorrelated assets. Particularly as we’re probably reaching a stage in the cycle where the long bull market run in equities could at some point be coming to an end. There’s certainly plenty of speculation about that, it’s a very long cycle. So I think from that point of view finding investments that will delivery returns but that also gives some security is extremely important.

PRESENTER: But has investing, I mean you mentioned that there’s been innovation that happens, but has investing fundamentally got more complex over the last few years? I mean I think of the range of qualifications that are rife for a CFA. You didn’t see that or nothing like as much of it 20/25 years ago.

NICK GEORGIADIS: No, and I can talk in those terms because I’ve been at Cazenove for so long. But you’re right in a sense. In a sense it has got more complex. Certainly I think the requirements in terms of your qualifications have intensified, and I think the quality of individuals working within the investment industry is very high these days, very good levels of knowledge, and it means that we’re able to consider such a broad range of different areas of investment. But I think actually the end goal is very similar to that that it always used to be and that’s to in modern languages to achieve good risk-adjusted returns for clients.

PRESENTER: And as you’re looking at this landscape, Simon, and you’re talking to advisers, are they typically outsourcing to a single DFM provider, or a range of them?

SIMON COOPER: Well I’d say very few are doing it just to one. And I think that’s quite a prudent way of actually looking at it from an adviser’s point of view. The way Cazenove manages money could be very different to the way somebody else manages money, and that gives them options for their underlying clients more importantly so that they can in a way have a range of options available for those clients. So in reality I’d say the majority of advisers have maybe two or three that they would work with. And of course you’re going to get the odd one that seems to really like the way one firm does that, and they give a lot of business that way, but actually I think two or three seems to be the number with which they’re working with. On the model portfolio side it could be all sorts. So the breadth of that is really quite wide.

PRESENTER: But, as you’re talking to advisers, how do they segment their client base? Is it to do with perhaps the ethos of the DFM and why that matches the client? Is it to do with the amount of assets under management, or the amount of assets the individual clients have got?

SIMON COOPER: Yes possibly. Maybe four or five years ago people were thinking of segmenting it purely based on quite a religious £250,000 and above goes towards bespoke, and maybe something underneath that goes into a funded offering. But actually I think now there’s more of a focus on actually what’s right for the client. There’s nothing stopping a multimillion pound client going into a model portfolio service. And again vice versa, there’s nothing stopping a £200,000 client going into a bespoke offering. So rather than, I think it’s how the IFA wants to run their business is probably the more important thing. If they have thousands of clients, then it might be a more prudent way of actually doing it. But if they have a more focused list they can chop and change depending on the client’s circumstances.

NICK GEORGIADIS: And I think occasionally, I mean you mentioned ethos, occasionally that is important, because we and our peer group have a certain brand identity if you like and occasionally that is important to a client as well and an adviser may take that into consideration.

PRESENTER: And how easy is it, I mean you’ve mentioned bespoke a few times and the importance of getting it absolutely right for the client, but how easy is it to run money the Cazenove way in your particular case, if you’ve got lots of clients of advisers who all want their money run slightly differently?

NICK GEORGIADIS: It’s not difficult with modern systems. And I think it just depends. The nuances don’t tend to be that great and I think it allows you still to maintain your investment philosophy. But it genuinely isn’t difficult to introduce as I say nuances that particular clients want, at least as far as we’re concerned.

PRESENTER: And, Simon, you talked about outsourcing, you’ve mentioned bespoke portfolios, but what are the other types of outsourcing arrangements that are out there in competition? I don’t mean individual brands, but what are the pros and cons?

SIMON COOPER: No, indeed, I suppose we started off purely running bespoke portfolios for the IFA industry, but actually in reality now the competition is with the risk-rated funds. It’s with the model portfolio services, multi-asset ranges, so actually, or multi-manager funds, even those are all risk targeted or risk rated, and IFAs can pick and choose whichever ones they think suits their business model and for their underlying client. And how are they accessible as well, that’s a very important thing. So bespoke arrangements, in the majority of those cases you’re coming and putting custody with the DFM for platform-based, it’s a completely different story, and it’s more of a technologically-based offering at that end of the market. So yes it is very broad. And it could be funds, it could be models, it could be bespoke.

PRESENTER: But, Nick, what would you say if someone said well just put all the money in a managed fund, it’s got a bit of everything in it, job done?

NICK GEORGIADIS: If it’s right for the client, then who are we to argue in a sense. And the adviser is making that decision. But there are also good reasons why an adviser might choose to guide a client down the bespoke route and that will typically be people who like the idea of forming a relationship as well if you like with a portfolio manager and having something that can be bespoke to their particular circumstances. But, you know, it is horses for courses, and I think as Simon has already said we wouldn’t be prescriptive ourselves on what a client should do.

PRESENTER: But in your specific case if a client came and they had a certain pool of assets and they said I just want them left as they are, build everything else around them, is that something within your ethos that you’d prepared to do?

NICK GEORGIADIS: Well I think logistically we can do it. Certainly there isn’t a problem with that. And we do have plenty of instances where clients ask us to retain certain assets that they’ve transferred in. But ultimately if they want to employ us and get the best out of us then clearly the best thing to do is to give us a mandate and allow us to exercise our best judgement.

SIMON COOPER: Yes, at the end of the day we’re discretionary fund managers. So they’re putting faith in us to do it for them so they don’t have to worry about it. So as Nick said we can accommodate certain things if clients already have those within their portfolios and they don’t want to get rid of them, that’s fine, but the majority of it has got, we’re aiming to run it in our way so that again they don’t have to worry.

PRESENTER: Now, you’re talking a lot about this as outsourcing purely on the investment side, but if you go to a DFM are there other things that you’re outsourcing to them as well as the investment?

SIMON COOPER: What, the adviser and the underlying client?

PRESENTER: Yes.

SIMON COOPER: Well yes there could be. And that’s something that has really changed actually. It’s the extra services that are now alongside bespoke. I mean that could be, we’re lucky enough to be part of a large group, so it could be banking in treasury. It could be lending against the portfolio. It could be IHT portfolios. It could be charitable investments. So there’s a really broad range of services. And I think that is actually a vital part of how outsourcing will move forward. It’s not, they’re not just going to go to that DFM for one particular thing, they could go there almost like a sweet shop and just pick and choose all sorts of different bits that suits their business and their client.

NICK GEORGIADIS: And I think also that we have the resource to keep on top of the trends. So for instance ethical investment is becoming increasingly popular, and we’re in a position to have resourced that and be taking that very seriously for clients and advisers. And so as Simon said it allows us to broaden the offering.

PRESENTER: But given all of these variables that you’ve mentioned both in terms of the service, the number of people out there offering outsourcing, the ways they’re, the particular offerings they’re putting out, how do you as an adviser compare all these, it must be almost impossible?

NICK GEORGIADIS: Well I think there are organisations out there that guide advisers. And they offer very good services, tools, in terms of being able to assess the various attributes that you would want to look for in a DFM. And also there are organisations these days that allow you to compare the relative performance of different DFMs, which very definitely wasn’t the case 20 years ago. So there are a range of options out there to help you pin it down. And advisers typically do end up perhaps with a panel of two or three DFMs as Simon has already mentioned.

PRESENTER: Simon, can you give us some examples of who these third parties are and what their offering is?

SIMON COOPER: Well, you could have firms like De Facto for example. You could have firms like AKG, which I believe is more based on the financial stability of the underlying firm, and there are Synaptics. So I mean there’s three, I must admit there’s probably five or six in the market that the IFA industry utilise. And from a discretionary manager’s perspective we have to work with all of those. Because you could be an IFA in Scotland that doesn’t want to use one, and they use another format, so therefore we start working with them. And I must admit the list has definitely got longer and longer over the course of the last four or five years. There’s definitely the resource out there for the advisers to get all the information they require. And in fairness we actually produce it all, you could come directly to Cazenove if I’m honest with you and ask for due diligence documents on all of our services, so all the information is there. It all depends on how the adviser wants to collate it and what system in a way they want to use and what feeds best into their back office system for example. And does it feed out the right risk rating once you’ve got it, for example, and things like that. So it’s quite a broad range.

PRESENTER: Well if I stuck just purely with investment returns, again if you’re running lots of bespoke portfolios for people it’s a DFM, and I come to you and say show us your track record, you’re presumably just going to give us the best track record you’ve got for a similar client. I’m being a little bit cynical here, but it’s not like a fund where it’s there for all to see, so how do you get over that issue?

NICK GEORGIADIS: I think advisers are a little more savvy than that these days, and I don’t think any adviser would accept us cherry picking our best portfolios and saying here you are, this is representative of our performance. So there are organisations that collate performance information, perhaps the most widely used is ARC, Asset Risk Consultants. We were an early contributor and so we have long data, but I think that gives you the most representative look at the performance of different DFMs, and also the volatility of the performance, which is equally important. So that’s a tool that means that DFMs cannot duck that particular question.

PRESENTER: And have you got any evidence of just how variable the risk and returns are that are available within the DFM universe? Because obviously you’re all offering different things and the performance will vary.

NICK GEORGIADIS: We are offering different things. And I think there’s a perception sometimes that it’s much of a muchness whichever DFM you pick in terms of performance, but actually the approaches do differ considerably. And again the information that the likes of ARC put out give you the dispersion of returns. And it’s marked how great the dispersion is between the different approaches and different managers. So it’s definitely worth an adviser making sure that the manager that they’re selecting will produce the sort of results that their clients will feel comfortable with.

PRESENTER: Well if you were an adviser and you’re starting to think about how you look at DFMs, considering them, let’s start say with the investment philosophy, how important is that to make sure that you understand it, or how big a difference does that make to the returns and the service and the risk that your client might…?

NICK GEORGIADIS: It makes a big difference. I mean I personally have managed money in very different ways over the years. Whether it’s an old fashioned equity-biased approach, or a more modern multi-asset approach, and the difference over cycles is very marked. And I think it’s up to DFMs to explain that to advisers, to guide them as to the likely outcomes and in particular the likely volatility that portfolios will experience during cycles. Because nobody likes to lose money during a period of time and the degree to which portfolios fluctuate will affect a client’s confidence.

PRESENTER: But when you’re talking about investment philosophy, Simon, I mean how do you express it? Is it something that should be possible to express in 150 words or something, does it need to be pages, what do you?

SIMON COOPER: I wish you could do it in 150 words, I don’t think it’s entirely possible to do that.

PRESENTER: Then what do you look for in terms of the numbers to prove that you’ve lived up to that?

SIMON COOPER: Yes quite, so I mean advisers, I mean if you look at ARC for example, that’s a look at what’s gone on in the past, and that does provide a very good snapshot of the company’s performance. If you’re looking at investment philosophy, that is something that’s obviously going to be quite important to the underlying adviser in particular. And I will go into an adviser sometimes and speak to them, and they really don’t want to know about it. And some that want to get into unbelievable detail about it. And that is entirely of their choice. And I’ve said this before a number of times, and we’re talking about quite technological things here.

We’re talking about investment process. We’re talking about ARC and previous performance. But the reality of why an adviser is really choosing a DFM is actually on the human basis of a personal relationship. And this is still a very human business. And actually we’ve noticed over the years we have exceptionally close relationships with advisers that we are in consistent contact with. So yes they are, I’m not going to belittle it and say it’s a tick box exercise when you first start with an adviser, but actually it’s the building of that relationship and the trust that actually is making more difference than some of the other more compliant-led topics of conversation.

PRESENTER: I get that that people buy people, and when you meet people you get a sense of whether you trust them, you feel comfortable with them, but behind that is the way that they’re organised, the way that they think when you’re not in a room with them. So how would you advise somebody, a financial adviser to think about the investment structure, the processes, the resources that are going on, all of that stuff that’s happening when you’re not in the room?

SIMON COOPER: Yes indeed. So if somebody was coming in brand new, didn’t know anything about Schroders or Cazenove, we would be teaching them about what our skillset is, where we have proven ourselves in the past, the resources actually is vital. And when we were previously at Cazenove before we merged with Schroders we were a much smaller outfit, and now we actually have an awful lot of strings to our bows. And those are the sorts of things we’re teaching advisers. Be it, as I alluded to before, the banking and treasury, for example, and the other parts of the service. But also at the end of the day our investment philosophy is streaming through the entire firm. And it’s teaching those advisers what that investment philosophy is.

So that when they’re in a client meeting, and they don’t have one of us there for example, they can compare us with one of our rivals shall we say, and then they can say actually I’m going to put two or three of these DFMs in front of these clients so that they choose their most favourite option. But we always have to teach them our methodology and the power and the engine that we have behind the investment returns that we’re making, and that is key from in the very first meeting. But you find that lessens the longer the relationship goes on, because they feel a lot more comfortable with you.

PRESENTER: Well, on the investment side, Nick, you talk about resources, does more people simplistically put equal a better risk-adjusted return, or is there a point where?

NICK GEORGIADIS: Good question.

PRESENTER: That’s not necessarily the key point.

NICK GEORGIADIS: I think it gives you greater chance of producing better risk-adjusted returns. Of course it doesn’t always correlate that more people equals that, but it does give you a greater chance. I mean for instance if you’ve got people on the ground in offices all over the world, then I think the quality of the research they’re carrying out on that local economy is going to be, it’s going to be much greater quality than somebody doing it from 10,000 miles away if you like. So I think from that point of view yes. And I think if you are somebody who uses a multi-asset philosophy, then again you need people who are expert in every single asset class that you’re going to look at. So that does require some real strength and depth and some numbers if you like.

PRESENTER: What would you say if someone said well do you know, a lot of multi-asset, the talk around multi-asset has grown up since 2008, and for most of the period since then it’s been in a bull market, so you would expect multi-asset to do well. Actually it’s things like Q4 2018 and perhaps what is more likely to happen in the future that’s, it’s actually an unproven concept.

NICK GEORGIADIS: I perhaps might slightly differ with that. Because I mean certainly managers such as ourselves, and there are others, have adopted this multi-asset approach for the best part of 20 years now so we’ve certainly seen it work through bull phases and bear phases so through full cycles. And I think whilst it is true for the last 10 years of an equity bull market just about everything has enjoyed a rise, I think during that period you would expect the equity-biased approaches to do best. And that as we enter a more difficult phase then it is the multi-asset strategies that should come into their own a little bit, and that should have been demonstrated in Q4, as you rightly said, and arguably looking ahead when this bull market does begin to peter out more meaningfully.

PRESENTER: So you’d say to an adviser, if you can dig out what your potential DFM did in 1999/2000 and 2007 through to 2009, grab it, it’s not history and therefore completely out of date and that could tell you something about the organisation.

NICK GEORGIADIS: It could do. I don’t know how many organisations still have the same investment philosophy as they did.

SIMON COOPER: Ten years on.

NICK GEORGIADIS: I mean I think we broadly do, but the underlying investments move on a lot, and the range of investments as we’ve already spoken about broadens as time goes by. How much emphasis you can place on performance data from 20 years ago, I don’t know.

PRESENTER: Approach, but approach with caution!

NICK GEORGIADIS: Yes.

PRESENTER: Fair enough. Now, I suppose, Simon, one thing that potentially eats into returns are fees and charges. So again if you’re an adviser, everyone’s going to tell you it’s a great story from investment and service on the outside, how much attention should you be paying to fees and charges?

SIMON COOPER: Well, from an adviser’s perspective it is absolutely, if they’re outsourcing it’s absolutely their job to be looking at how much the client is being charged. With MiFID II you can understand this has become even more transparent, and rightly so. But the bottom line is, is it value for money? And we believe what we’re doing is value for money, and I think that’s the way a client would invariably look at it. My own family are clients of ours and the first thing that they look at is what did I give you, what have I got now, what have I paid for the privilege? And I think that is really the way the majority of clients look at it. So there is an emphasis on cost, but we don’t want that to be at the detriment of performance. And costs are being highlighted at the moment, but we are looking at ways of potentially mitigating those for our clients. And we work with advisers in terms of the overall charge to those clients as well. And I think that is something that will come even more in the course of the next 12 months in particular. But we don’t fear it, because we believe we’re actually delivering, and I think that’s the important thing for our clients.

PRESENTER: Do you have a formula for what constitutes value for money?

NICK GEORGIADIS: Well I think…

SIMON COOPER: I don’t think there’s one written down on paper but.

NICK GEORGIADIS: No, well I think a clear formula, if you want to call it a formula, is simply that the numbers that we and our peers produce, the performance data we produce is net of all fees. So if clients and advisers are happy with the performance numbers that they’re being presented with, and they’ve got the comfort of knowing that that’s net of our fees and net of underlying costs in portfolios then that is really the most important thing.

PRESENTER: One topic, and it’s always quite hard to get your head around is brand, because everyone’s got a different view of it. There was an RSM research survey that said 83% of the advisers it had spoken to judged DFM teams on their size, reputation, so essentially it’s financial stability and brand. How important do you think that is to making a decision? And do advisers tend to overestimate its importance or underestimate it?

SIMON COOPER: Possibly, I think brand can be quite important. But my phrase is the fact that brand gets you in the room, it doesn’t necessarily keep you in it. Performance and service is what keeps you in the room, but brand can be very important. And we come from a firm that has got an exceptionally long history, but that doesn’t mean that there aren’t other firms that are brand new that can have just as good a performance. But I think that a lot of clients, you can go and buy a pair of Nike’s because you like Nike trainers. In a way it’s a similar principle, people associate the brand with quality and performance and actually proven track record. So I suppose in a way actually brand is a very important factor.

PRESENTER: But what about the long-term stability of the business, how do you judge that? Because I mean in financial services you see loads of companies buying each other up the whole time and you do worry that something could get lost somewhere.

NICK GEORGIADIS: And I do think that’s important as well. Because I think continuity of managers if you like is extremely important to individuals, to clients, etc. So I think it’s important that when advisers are looking for DFMs, they are looking at the background and security, the longevity of the firm and as I said the financial security; I think companies such as ourselves have high family ownership, which tends to lead to long-term thinking and planning, and that can be a reassurance to some as well.

PRESENTER: And obviously as this is an Akademia we want to keep it quite generic, but that said you’re Cazenove, you’ve been bought by Schroders, where’s the proof you’re Cazenove with bigger backing rather than a business that’s just gradually being turned into Schroders?

NICK GEORGIADIS: I would like to think that if you talk to any advisers who were working with us before the takeover, they would say that they have noticed no difference in our fundamental approach. We’d like to think that we are tapping into the expertise of the broader company to enhance the service. But I’m confident that if you talk to any of them they will not have seen a change. And of course they chose to work with us in the first place and stayed with us because they like what we’re doing. The fact that they’re still with us six years later tells you everything.

SIMON COOPER: I think the majority of it has been incredibly positive, because we’re bringing so much more to that financial adviser’s doorstep than we could have done five-six years ago, and that’s why they’ve reacted in that way.

PRESENTER: Now you mentioned earlier Simon back office compatibility. Can you just talk us through that, because again we’re all talking about numbers, but I guess if the right numbers don’t end up in the right place for the adviser and the client, that’s a disaster?

SIMON COOPER: So I mean that is becoming increasingly important from the service that any DFM provides. And that is every adviser seems to have a different back office system. So the one that they use is the one they want to continue using, and we can’t force them to use something else, so therefore we have to be able to feed our portfolios for their clients into their back office system so that actually they’ve got one portal that they can see all their client information from. So that means that we’re working either with our own in-house systems feeding into theirs, or via companies like IRIS for example, to feed into the systems that they use. So that they’ve got daily feeds from Cazenove into their own back office system, and I do think that is going to be a vital component moving forward as advisers try to keep more control of their own business and their own data in a way, and therefore back office systems and the way that we integrate with them is going to be very important.

PRESENTER: And how do you manage potential conflicts of interest as a DFM, because you’ve got our own direct clients and then you’ve got once removed clients?

SIMON COOPER: Quite. And I suppose, and we’ve been doing this for what, over a decade haven’t we? So that was a question that was probably more pertinent back then. We set the team up, of course I’m just talking from our perspective here, we set the team up purely to work with financial advisers, so there’s almost a Chinese wall around our team and the rest of the firm. We also believe that if we, it’s commercial suicide for us to do anything other than work with external financial advisers, we want to help those financial advisers grow their business, and in fact the reality is that we view ourselves as the DFM team, as the investment arm of that financial adviser, so it’s a slightly different mindset. So the reality is we haven’t really come across too much of that conflict in the years gone by.

PRESENTER: But if you were an adviser, Nick, and you wanted to just check that your clients were getting treated the same way as those who’d, for whatever reason, worked direct with the first, is that a fair enough bit of digging, sort of digging to do? How would you go about it?

NICK GEORGIADIS: Yes, although as an adviser in a funny way, and this is our experience, you might not want them to be treated in the same way, and what I mean by that is that we certainly defer to what the adviser, how the adviser would like the relationship run. And that might mean that we have direct contact with the underlying clients, but it might mean actually that all contact goes through the adviser. And in that instance we are perhaps not treating that end client as we would if they’d come to us directly. So we are deferring in the relationship to the adviser, they have introduced the clients to us.

PRESENTER: You’ve both obviously met lots of financial advisers over the years, when you look at some of the due diligence processes that financial advisers have put you through, what are some of the things that have impressed you most? They might not have been the things that made you feel most comfortable, but what are some of the really thorough?

SIMON COOPER: What, in terms of the areas they’ve been looking at…?

PRESENTER: Yes, the things they’re looking at, really good questions that they’ve asked you that have really made you think this is, put you on your metal.

SIMON COOPER: Oh quite, I mean if you’re going through a normal due diligence process, they want to actually get into the nitty gritty of the way we manage money. They want to know what our back office services are, as you were alluding to before. They want to know how our performance has been. And they want to know how that has altered in fluctuating markets for example. So there are some people that just want a tick box done, compliance exercise done, but actually there are a lot that get into the real delve underneath the bonnet of the company, and that’s quite encouraging to see. Whether that’s answering everything that they require, I’m not sure whether one single document can actually do that, and actually it’s working with us in practice that seems to get them the most answers and actually getting the proof in the pudding.

NICK GEORGIADIS: And I think from an investment viewpoint it’s not being prepared to just look at the numbers and say OK they’ve done well over five and 10 years. It’s actually looking beyond just the performance, but looking as I said earlier at the volatility, and also the process behind the numbers. What are we as a DFM trying to achieve compared to how other DFMs are trying to arrive at that end goal? Because it means the journey will be very different. So when advisers look at that in some detail, then we know that they’re professional and taking it very seriously.

PRESENTER: As fund selectors, certainly part of the role of DFM, you obviously like to meet the managers. If an adviser said oh can I come and meet you, see the office, just sit quietly in a corner and see what’s going on, is that something that you’re allowed to do?

NICK GEORGIADIS: Come into our office?

PRESENTER: Yes.

NICK GEORGIADIS: Yes, and very occasionally it happens. Most advisers’ views of our office is, and I suspect of our peers as well, is of the meeting rooms. But if one of them asked to actually come and see the team at their desks, certainly we wouldn’t say no to that. We might advise the team to be on best behaviour, but we wouldn’t stop them coming in.

PRESENTER: So there’s that transparency and the investment engine is something that’s important to provide.

NICK GEORGIADIS: Yes, I think, I mean what we wouldn’t do is expect these advisers to come into investment meetings etc., but certainly to come and view where we’re at in the office, what we’re doing and how we’re doing it, yes that wouldn’t be a problem.

SIMON COOPER: We actually put a lot of emphasis on the fact that the adviser has a very close relationship with the person that’s physically managing the money as well. So they might not need to come into the office to learn exactly how we’re exactly working, which is important. So the portfolio manager will be assigned to that individual adviser and their underlying clients, and they really do grow that relationship, so they learn quite a lot from that anyway.

PRESENTER: We’ve talked a lot about on-boarding and how you pick, as an adviser pick a DFM, and some of the things to think about, but obviously it’s then a relationship over a number of years. How regularly should you be sitting down and formally reviewing that relationship if you’re an adviser?

SIMON COOPER: Well yes OK, so you’re putting that on the adviser rather than on us in way.

PRESENTER: Yes, I mean you might have a view that, you know, yes.

SIMON COOPER: I mean there should be, there’s some IFAs that we run hundreds of clients for, so we would probably see them once a week. And again I put it back onto the adviser, how do they want to run their business? Some advisers don’t want us to have any contact with their underlying clients, which is fine. Some want us to have all the client contact. So again the emphasis is on how they’re running their business, rather than how we run ours.

PRESENTER: But I think also not just how the, your connection if you like to their underlying clients, but also just if I was asset.tv IFA, is there a point I should sit down and formally say is Cazenove Capital?

SIMON COOPER: So doing it again yeah, over and over.

PRESENTER: Or Brewin Dolphin or Smith, or whoever the DFM is up to scratch, I should just, haven’t looked at it formally for two/three years, how?

SIMON COOPER: Most advisers are doing it annually if I’m honest with you. A lot of advisers are part of networks for example, who would do that for them. That due diligence, so the documents can get passed on. So it’s slightly third party in a way. But a lot of advisers will send document requests to us on an annual basis. Some of them want to come in and really lift up the bonnet and have a proper discussion with us and see what’s changed for example over the last 12 months. Some of them maybe it’s a little bit longer than 12 months. But in reality they are doing it on a fairly regular basis, and increasingly so.

NICK GEORGIADIS: I think that’s the formal side of things. I think from an informal point of view it is the fact that we are in constant communication with the advisers, that we’re sending out quarterly valuations, and so that inevitably prompts conversations at that point about performance. Service considerations are constantly ongoing topics of conversations. So, it is, there’s an informal process happening all the time really.

PRESENTER: I think we’ve got through a lot in the last 30-35 minutes, but if there was one key point from all of this that you think really does stand out that advisers need to consider when it comes to outsourcing to DFMs, what would it be, Nick, I’ll come to you first?

NICK GEORGIADIS: I think that DFMs are different in their approach, both from a performance point of view and a service point of view, and it’s therefore very important that advisers do some proper research, some proper digging into both areas.

PRESENTER: Simon?

SIMON COOPER: I would add to that by saying actually get to know the underlying portfolio manager. And don’t just base it just on the hard copy document, I think actually learning how they’re working on a day-to-day basis is very important for your clients, and I think really packaging the two together is the best way forward.

PRESENTER: Simon Cooper, Nick Georgiadis, thank you both very much.

BOTH: Thank you.

PRESENTER: In order to consider the viewing of this video as structured learning, you must complete the reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session you will be able to understand and to describe the main different types of outsource solution available to advisers; the core components of an outsourced solution from investment philosophy through to back office compatibility; and how to identify and manage potential conflicts of interest. Please complete the reflective statement to validate your CPD.