FCA Gives Guidance on Choosing a DFM

The FCA has recently provided guidance to financial advisory firms on what they should be looking for from a Discretionary Fund Manager when outsourcing.

For years, attitude to risk questionnaires have been the start and end point for assessing a client’s attitude to risk and clients have been placed into model portfolios or invested with portfolio managers that may no longer be appropriate for their needs.

FCA technical specialist Rory Percival said at the Defaqto Conference that the regulator was concerned about the risk-mapping exercise performed by advisers being appropriate for the client.

He specifically mentioned concern over the IFA’s understanding of the client’s risk profile, and that of the fund or portfolio, and the issue of them not being mapped together.

In addition, Rory went on to say “there are other factors you need to think about: capacity for loss, client knowledge and experience and the term of investment”.

At OCM Asset Management, we have a DFM solution that brings together the client strategy and our innovative Outcome Based Investment (OBI) approach; where the portfolio a client is invested into, is matched with their required annualised outcome and their indicative capacity for loss, at point of implementation and on an on-going basis. The client’s strategised outcome as well as their capacity for loss is what drives the directional investment strategy.

We therefore ensure the client and portfolio are mapped together on day one, and remain that way.

Therefore, the focus of our DFM and OBI strategy is to then ensure that the mapping is carried out by evaluating portfolio risk and portfolio returns at an individual client level. We will, if required, move clients between portfolios if the forward looking volatility profile of a portfolio becomes detached from an individual client’s objectives.

Our approach involves our investment managers working hard to try and minimise the losses and maximise the profits by adopting “Shift and Squeeze” (shift the mean and squeeze the range), using our Quantamental Analysis to manage portfolios. This satisfies both the clients’ need to deliver on their individual outcomes and that of the IFA to give clients a bespoke integrated DFM proposition.

If the above is of interest then please call one of our Investment Managers on 0845 338 1971. As the whole proposition at OCM has been created by an IFA for IFA’s we have a unique understanding, you can benefit from.

By Pritpal Lotay,

Multi-asset Strategist

As published in Investment Adviser.