While the move by advisers to outsource the investment aspect of clients’ portfolios had begun ahead of the RDR’s introduction, there has since been a definite shift to more intermediaries using DFMs.

As David Thurlow, director at Mattioli Woods explains, the RDR was “a tipping point”.

He says: “For those with the right skills, DFM made good sense; for those without those skills, DFM (outsourcing) became essential. However, whilst [the] RDR created the demand from advisers, it [also] tapped into demand from investors that was already there.”

Mr Thurlow harks back to a time when the DFM market was dominated by stockbroking firms, which provided investment management to those with large amounts of investable assets. But it seems times are changing.

He observes: “Whilst these models still exist, often alongside a separate adviser, increasingly the DFM and the advice is provided by the same organisation, so the investment management can become much better aligned with a client’s needs and objectives.”

Research by online journal Investment Trust Intelligence among 72 DFMs reveals that when asked to rank their most popular investment trusts, the respondents showed a preference for those with a “benchmark-agnostic” investment strategy.

The top three most popular trusts were Scottish Mortgage, Finsbury Growth & Income and Perpetual Income & Growth.

“Given these trusts pay no attention to the benchmark, and are focused on long-term growth prospects of the companies in which they invest, it’s easy to see why DFMs would use them as a core holding for their retail clients – especially… when the outlook for equity markets is so uncertain,” suggests William Heathcoat Amory, founding partner of Kepler Partners, which published the journal.

DFM services are no longer the preserve of the wealthy either, thanks to the adoption of technology in the space.

Mr Thurlow remarks: “The thresholds are coming down as technology makes it more economical to offer a DFM service to those with smaller funds. One of the reasons for the growing demand has been that DFM has ceased to be the preserve of those with half a million pounds plus.”

So how do advisers go about selecting a DFM in a world where costs and the perceived value for investors is coming under more scrutiny?

Advisers rank quality of service as a significant factor when deciding to appoint a DFM, according to a study by Investec Wealth and Investment. Of the 102 intermediaries polled, 67 per cent cite quality of service as the most important criteria when undertaking due diligence on a DFM.

Against a backdrop of economic uncertainty and growing calls for more transparency over costs, DFMs face a number of challenges in the year ahead.

Ellie Duncan is deputy features editor at Investment Adviser