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Defaqto: Due diligence remains key to unlocking multi-manager potential
Categories: Investments, RDR
According to independent financial research company Defaqto, in the run up to Retail Distribution Review (RDR) implementation advisers are likely to view multi-managers as an effective route for outsourcing clients’ investment portfolios – but robust due diligence is central to ensuring advisers achieve the full benefits of outsourcing for themselves and their clients.
Defaqto research has found that 23% of platform users outsourced to a multi-manager in 2010. With the volume of assets invested in multi-manager funds having increased by almost 600% in the last decade – from around £11bn in 2001 to approximately £63.5bn this year1 – it seems likely that multi-manager funds will continue to be an important outsourcing route for advisers in the run up to 2013 and beyond.
According to Defaqto’s Guide to multi-managers, published today, this outsourcing route presents a number of opportunities to advisers, including:
- Freeing up internal resource to develop client relationships and prospect new revenue streams
- Facilitating access to past performance data of fund managers to ensure transparency
- The ability to retain control of some aspects of the investment process, such as asset allocation, depending on the funds chosen
However, given the dynamic nature and size of the sector, effective due diligence is key to ensuring advisers are able to unlock the full range of benefits multi-managers can offer. Defaqto’s guide aims to give advisers the information they need to fully understand the multi-manager sector and make selection decisions that will best benefit themselves and their clients.
Fraser Donaldson, Defaqto’s Insight Analyst for Funds, said:
“In the lead up to RDR implementation, multi-managers will be looking to ensure that their propositions meet the needs of advisers and clients. By the same token, advisers are likely to be thinking about how they will deal with clients’ investment portfolios under the RDR, with outsourcing being a key priority for many.
“Our research shows that despite the increase in assets being invested in multi-manager funds, in recent years the discretionary management industry has been seriously targeting the adviser space. As a result, there is now a real choice of approach for advisers wishing to outsource their investment management, and in many respects the multi-manager approach is complementary to discretionary management and certainly an option that needs consideration.
“Given the sheer size of the multi-manager industry and pace of change we are seeing, advisers looking to outsource through this channel need to undertake a robust due diligence process to ensure they select appropriate investment partners for their business and ultimately their clients.”
Defaqto’s Guide to multi-managers covers a number of areas to help advisers effectively outsource through a multi-manager, including:
- Advice on selecting an appropriate multi-manager with investment philosophies and processes that most closely match clients’ needs
- A breakdown of funds categorised by IMA sector showing how effectively each fund employs risk, as shown by their Defaqto QuantRater ranking – a quantitative fund rating that looks at the past performance of funds and their information ratio over the past 69 months to identify consistency of performance
- Recommendations on how to make the best use of internal resource made available by outsourcing the investment process to a multi-manager
Defaqto’s guide can be downloaded, free of charge, at: www.defaqto.com/adviser/ifa/guides.
Advisers can access further information about Defaqto’s QuantRater tool at: www.defaqto.com/adviser/quantrater.
Defaqto provides bespoke consultancy services for advisers, including assistance on multi-manager selection.
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Article last updated: Sep 15, 2011
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