A strong DFM market

25 March 2016

David Boyle – Funds and DFM Researcher

The economic climate over the past couple of years across most major markets has been characterised by periods of high volatility and uncertainty, a statement that I expect few will disagree with. One could be forgiven for thinking that factors such as policy error, the commodity collapse, Greece and China might not be conducive to growth in discretionary assets under management (AUM) and indeed the competitive landscape of discretionary fund managers (DFMs). 

There is some truth in this, and some discretionary managers are feeling the pinch. However, recent data collected by Defaqto paints a slightly different picture. Discretionary assets under management as at the end of December 2015 were up 14% on the previous year and almost 20% on 2013. In a period where sharp market corrections have been common and some indices have fallen over 20%, these figures make for refreshing reading against the back drop of gloomy economic news bulletins.


Figure 1. Total Discretionary AUM as at 31st December for each respective year – Defaqto Engage.

Now comfortably into the 84th month of historic interest rate lows, and with only the odd murmur of any change from the paltry rates currently on offer to savers, could it be that those clients previously averse to any stock market risk have had a change of heart?

Whilst a number of DFMs have reported steady flows of adviser business through their own advisory arms and also third party intermediaries over the last year or so, assets under management have also been boosted by a number of acquisitions, business restructures and new ventures.


Figure 2. Growth in the DFM space – data taken from Defaqto Engage.

These figures of course must be analysed in conjunction with the evolution of the DFM market over the same time period. The number of DFMs Defaqto collects and holds data on has increased by 9% for 2015, up from 5% in 2014. In terms of propositions, this also increased by 10% for 2015 and 9% in 2014.

It may just be that continued market uncertainty has meant that a growing number of advisers have concluded that it is in the clients best interests to outsource investment portfolio management to investment specialists such as discretionary managers. With 2016/17 also being widely forecast for a bumpy ride, DFMs face more of the same in terms of volatility and uncertainty. Whilst this also presents its fair share of opportunities, there are new obstacles to contend with on the horizon in the shape of MiFID II and the additional regulatory cost that this may bring.


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