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Adopting DFMs – what value and cost for advice firms?

21 January 2020

Money makes the world go round, or so the saying goes. Rathbones’ Value of Discretionary Fund Management (DFM) report set out to discover exactly how adopting this service could hit the pockets of advisers.

In a survey of advisers who chose to adopt a DFM structure, 58% reported that revenues from existing clients had increased “as a result of spending more time with them”. Adopters reported an average hourly charge that was £10 higher than non-adopters (£206.40 against £196.40).

Using independent research compiled by CoreData – the report went a step further in order to compare revenues and revenue growth for the two camps of adviser, those with DFM support and those without. Adopters reported annual average revenues of £220,716 in 2017, 18.3% more than the £186,606 average for non-DFM users.

Adopting advisers also reported having 21 more clients on average compared to non-DFM users (172 for adopters against 151 for non-adopters). However, it is important to note that these are averages, based on results of the survey, and will hide extremes at either end of the scale. Nor do the survey’s findings provide any guarantee that the adoption of DFM will lead to increases in adviser revenue or numbers of clients.

While meeting with existing clients was the main revenue-earning activity for each group, some adopters reported being able to spend approximately 2.5 more hours on it each week than non-adopters (based on a standard 40-hour week). Managing existing client investments is more ‘financially important’ for non-adopters who focus more time each week doing it (20% vs 13%). And while seeking new clients is nearly 50% ‘more important for revenue’ for non-adopters, those surveyed were only able to dedicate the same amount of time to this (7%) as adopters.

Early vs recent adopters

Comparing the ‘early’ adopters – those who adopted DFM more than six years ago – with the ‘recent’ adopters who took on DFM between one and five years ago, the survey also found some advisers experienced a correlation between the length of time since adopting DFM and revenues.

Almost two-thirds (63%) of early adopters reported that revenue per client has increased as a result of spending more time with them, with 54% of more recent adopters saying the same.

Early adopters also reported greater success across a range of measures that are often associated with higher revenues. They reported greater success in acquiring new clients, greater trust amongst existing clients and 87% said they were more comfortable with the make-up and wealth of their client base against 68% of recent adopters who said the same.

Affect on advice firm salaries

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