What DFMs Offer
DFMs devise model investment portfolios, designed to meet the needs of investors with a range of risk appetites, ethical and religious requirements and investment horizons. These are made available to the market through investment platforms, through which advisers and their clients can place investments conforming to those models.
Over time variations in performance mean that the investments made by clients can drift with respect to the model. DFMs periodically rebalance those investments to bring them back in line, but the interactions between DFMs and investment platforms can generate process friction in two areas.
DFMs need Management Information
DFMs need Management Information (MI) about clients invested in their models, including investment performance from platforms to calculate the trades required to affect that rebalancing. There is no consistent presentation of data or process to obtain this MI across multiple advised platforms, generating a significant operational overhead for DFMs.
DFMs then need to instruct the trading required by the platform to bring client investments back into line with the model. This is generally done ‘on-platform(s)’ by manually keying calculated trades across client accounts. That can generate risk, and the costs associated with ‘four eyes’ processes to mitigate them.