It seems that the seismic changes, brought on by the RDR, have passed most of the folks outside our industry by. To most, the world of investment remains a mystery, apart from the odd Hollywood film.
The trusted adviser therefore remains the primary source of knowledge on how investment strategies fit in with their life plans.
Unfortunately for advisers, the whole area of investment solutions has become even more complex, with different fund groups providing a variety of solutions that may ultimately produce different outcomes for their clients. New groupings of funds could help provide clarity and understanding for some advisers.
Broadly speaking, most advisers will assess two main options when looking to provide investment solutions – discretionary fund managers (DFMs) and multi-asset funds.
We define unitised discretionary fund managers (UDFMs) as collective investment schemes run by discretionary managers. Some might seek to mirror existing segregated solutions while others could simply be a reflection of the discretionary firm’s house view and investment style.
UDFMs sit within the DFM space, alongside bespoke discretionary services and managed portfolio solutions (MPS). For a bespoke discretionary service using a full range of assets and investment vehicles, minimum investments are likely to be of the order of £250,000 upward.
For MPS, which benefit from efficiencies of scale and a reduced service proposition, minimum investments are still likely to be of the order of £20,000 and over.
Many advisers who subscribe to the investment philosophy and process of a particular discretionary manager, however, may not want to undergo further due diligence for clients that do not have or do not want to commit these amounts of money.
As a result, an increasing number of discretionary managers have addressed this problem by unitising their portfolios and launching them as authorised collective investment schemes. This means that access to the same, or at least similar, investment management as managed and bespoke services is made available for as little as £1,000.
UDFMs also sit within the Multi-Asset fund space. In some ways, UDFMs are similar to risk-targeted funds in that the approach of discretionary firms in their segregated portfolios has been about managing risk within the comfort zone of their clients and achieving a long-term target, with the result that it is unlikely many UDFMs will significantly excel in terms of short to medium term performance – but instead would deliver steady performance over the longer term and demonstrate their ability to manage risk.
However, UDFMs are really distinct in the way they are run, managed and structured and our approach at Defaqto has been to separate out UDFMs from other ‘managed’ fund ratings as we feel that they stand alone as a sector in their own right.
We have built a synthetic sector of UDFMs in the same way as we have for risk-targeted funds as both exist across a number of traditional IMA sectors.
In the case of UDFMs, these sectors are Mixed Investment 0-35% Shares, Mixed Investment 20-60% Shares, Mixed Investment 40-85% Shares, Flexible Investment, Sterling Corporate Bond, Global Bonds and Unclassified.
