Defaqto launch Star Ratings for DFMs

Independent financial research company Defaqto has launched two new Star Ratings for Discretionary Fund Managers, covering Bespoke and Model Portfolio Service propositions.

Related topics:  Savings & Investments
Amy Loddington
11th July 2012
Savings & Investments
According to a Defaqto survey in January this year, 42% of platform users are currently outsourcing some or all of their investment process - with 21% using discretionary managers. With Retail Distribution Review implementation fast approaching, outsourcing investment is high on the agenda for many advisory businesses and it is likely to continue to act as a catalyst for further partnering with discretionary managers.

From a DFM's perspective, they will need to present an appealing proposition to advisory businesses if they are to take advantage of the opportunities offered by the RDR as 2013 approaches.

Defaqto's Star Ratings provide an independent assessment of 35 Bespoke and 45 MPS propositions, based on the features they offer and the quality of their service offering to the adviser market - giving each a rating of 1 to 5 to indicate where they are positioned in the market.

Defaqto has based its assessment on 29 key features of Bespoke propositions and 28 for Model Portfolio Services, including:

- The value of discretionary assets under management

- Traditional and alternative investments permitted

- Minimum investment and withdrawal levels

- Accessibility through tax wrappers

- Back office integration capability

- Approach to fund manager rebates

- Transaction and other administration fees

To achieve a 5 Star Rating, a DFM must include certain core features to ensure that only those including these key benefits, in addition to meeting overall requirements, are able to achieve the highest level of rating.  These core features include:

- The availability of online valuations

- The facilitation of in-specie transfers out
 
- The provision of a consolidated Income Tax statement

- The inclusion of a Capital Gains Tax report

Fraser Donaldson, Defaqto's Insight Analyst for Funds, said:

"We have seen a significant growth in the number of advisory businesses that are outsourcing to a DFM, or are planning to do so in the lead up to 2013 and beyond.  When looking to outsource to a DFM advisers need to treat the partnership as a long-term business relationship - robust due diligence is therefore critically important. 

"However, the DFM space, both bespoke and MPS, is crowded and propositions vary widely.  As a result, it is understandably difficult for advisers to evaluate which solution will best suit their business and client base.   

"Equally, there is an inherent challenge for DFMs - how can they differentiate themselves within the marketplace and appeal to advisory businesses during this window of opportunity?  Our Star Ratings assess DFMs across a wide range of aspects to provide an independent verification of what a proposition offers.  To achieve the highest level of rating, propositions will need to demonstrate a high degree of dedication to the intermediated market, flexibility, transparency, and high levels of personal and online service."
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