Online ancillary service – valuations and transactions

03 October 2015

Fraser Donaldson – Insight Analyst (Investments)

I find it intriguing that the most important aspect of a discretionary management service to advisers recommending to their clients is access to online valuations and transaction histories.

It could be argued that as advisers have delegated management of their client’s portfolios to a third party, it would be reasonable to let them get on with it, with regular monitoring through the standard DFM reporting, which would usually be twice a year or for bespoke portfolios as arranged with the DFM.

This tells me two things. Firstly, even though advisers are increasingly outsourcing management of their client’s investment assets they are taking this step very seriously. In other words they see the recommendation of a third party as very much their responsibility, as they should. Occasional monitoring of progress just doesn’t cut it in this day and age.

Being able to instantly assess the third party’s progress at any time through access to online portfolio valuations and transaction histories is a valuable tool. Eyeballing a standard reporting package that may be several months out of date will not tell advisers what they want to know, particularly in volatile markets.

I would not necessarily expect advisers to challenge a discretionary managers individual trades, as this would defeat the object of discretionary management. However, it would be reasonable to question sudden unexpected falls (or even rises) in value that would not normally be expected in prevailing market conditions.

Perhaps a more measured approach to portfolio monitoring would be to simply check that the manager is following the portfolio mandate. For the individual client in the case of bespoke portfolios or as published in the case of managed portfolio service options. Increasingly, the goal of clients is to achieve planned for outcomes, while taking as little risk as possible. I think gone are the days where shooting for top quartile performance over largely irrelevant periods of time to the client, was the way to measure success.

While it would be tempting to celebrate periods of significant outperformance, if it is achieved by taking more risk than the client is comfortable with warning signals should be flashing. If the risks taken do not come off in any period, the client would have reasonable grounds for complaint, particularly if it had been established at outset what those risk parameters were. Advisers can keep tabs on this if they are in a position to see client valuations at a touch of a button.

We have to take a look at the information Defaqto collect on provision of these ancillary services to get to my second conclusion. All but 11 of the 183 discretionary solutions that Defaqto cover currently provide both online valuations and online transaction summaries. This is a far cry from when we started to collect discretionary data some 6 or 7 years ago where, with a few notable exceptions, many discretionary managers thought it was no-ones business but their own how portfolios were performing or even more fundamental information such as how much it would cost.

It is gratifying to see that this attitude is now very rare and if discretionary managers wish to attract assets through the advisory distribution channel they have to provide what advisers want and in the format advisers request it.

While the provision of recent portfolio data online is undoubtedly a help to advisers, due diligence ought to include how it is presented. We would expect valuations to be no older than close of business the previous day and transaction histories to be detailed going back at least as far as the most recent report.

We would also expect access to this information to be available on any day, at any time of day. We are aware that some DFM’s are upgrading to provide this level of service, so it is worth asking for future plans in this area if the current application is a little below expectations.  

These days, there really is no excuse for DFM’s not to provide access to client portfolio valuations, and transactions particularly where there is a financial adviser intermediating. It is an acknowledgement by both adviser and discretionary manager that in most cases the provision of this investment solution is a shared responsibility, both in terms of personal relationships with the client and indeed contractually and from a regulatory stand-point.


Share this