Asset managers should expect more fee pressure from DFMs – Cerulli

Added 30th June 2016

Active asset managers can expect growing pressure on fees from DFMs, according to a study from data company Cerulli Associates.

Asset managers should expect more fee pressure from DFMs – Cerulli

The study, called “Asset Management in the United Kingdom 2016: A Guide to Retail and Institutional Market Opportunities,” consisted of two surveys; one of IFAs and the other DFMs.

Cerulli found that the UK retail advisory channel is increasingly divided between large multiservice advisor and wealth management companies and small, traditional independent advisors. The smaller players are increasingly likely to have to outsource investment management Cerulli found. At present 65% of UK IFAs currently outsource investment assets to DFM’s.

Among DFMs, one-third invest more than 80% of their assets in third-party funds, and 24% invest 100% in third-party funds. Less than 10% of respondents invest in no third-party funds at all.

Every DFM in the survey said they use passive strategies to some degree, while 80% reported some allocation to exchange-traded funds. More than half said they invest in index-tracking funds, and a third invest in smart beta funds.

"Although few DFMs expect their allocation to passive investments to decrease, the majority do not plan to increase allocations either," said Laura D'Ippolito, lead author of the report. "This is good news for active managers targeting this segment, but asset managers can expect fee pressure from DFMs."

"DFMs are increasingly institutional in the way they approach fund selection, having increased their levels of due diligence on asset managers and funds,” she added. “This is contributing to the continued fee pressure felt by asset managers, as is the use of passive strategies."

According to Cerulli senior analyst Tony Griffiths, the majority of DFMs reported having between 20 and 50 managers and funds on their buy lists and are not looking to add to this, which means competition for places on these lists. Around 80% expect the number of managers and funds on their buy lists to stay the same over the next 12-24 months, he said.

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