As regulatory requirements continue to evolve, many independent financial advisers (IFAs) are increasingly partnering with discretionary fund managers (DFMs) and adopting platform-based model portfolio services (MPS).
The appeal is understandable. For many firms, outsourcing portfolio management can help free up time to focus on client relationships, strategic planning and business growth.
However, selecting the right DFM partner is an important decision. With a wide range of MPS providers available, advisers should undertake careful due diligence to ensure any partnership aligns with their investment philosophy, client needs and regulatory obligations.
Here are six key areas advisers should consider when evaluating a DFM or MPS provider.
1. Assess long-term investment performance
Performance is often the first consideration when reviewing an MPS provider, but it should be assessed carefully and over an appropriate time horizon.
When evaluating a DFM, advisers may wish to consider:
Long-term total returns relative to peers and benchmarks
Risk-adjusted performance over time
Consistency of returns across different market conditions
Performance over discrete annual periods, rather than relying solely on cumulative figures
Short-term outperformance alone may not provide a reliable indication of investment quality or process strength. It is not uncommon for last year’s top-performing manager to underperform in subsequent years.
Reviewing performance across three, five and even ten-year periods can provide greater insight into whether returns have been achieved consistently and in line with the stated investment approach.
Risk-adjusted performance is equally important. Strong returns achieved with excessive volatility may not be suitable for all clients, particularly those with lower risk tolerance.
2. Evaluate costs and value for money
Costs remain a key consideration when assessing any investment solution. Advisers should look beyond headline management fees and consider the overall cost of ownership for clients, including:
DFM fees
Platform charges
Wrapper costs
Adviser fees
Underlying fund expenses
Under MiFID II requirements, DFMs must provide detailed disclosure of investment management and transaction costs, enabling advisers to compare providers more transparently.
However, low cost alone should not be the deciding factor. Advisers should also consider whether a service represents fair value, particularly under Consumer Duty requirements, which place increased emphasis on client outcomes and value for money assessments.
A well-constructed MPS should balance competitive pricing with robust investment oversight, governance and service quality.
3. Review financial strength and operational stability
A DFM’s financial stability and operational robustness can be important indicators of long-term reliability.
Areas advisers may wish to assess include:
The financial strength of the business
Independent ratings, such as AKG assessments
Ownership structure and potential acquisition activity
Business continuity and succession planning
Independent ratings can provide a useful external assessment of financial resilience and operational quality.
Changes in ownership are not necessarily negative, but advisers should consider whether they could lead to changes in investment philosophy, staffing or client service standards.
4. Consider communication and client service
Strong communication is an important component of any successful adviser-DFM relationship.
Advisers should assess whether a provider offers:
Regular portfolio and market updates
Clear explanations of investment decisions
Accessible client-facing communications
Dedicated relationship management support
Timely responses to queries and operational requests
Client-facing literature also plays an important role in shaping the client experience. Well-presented and clearly written materials can help advisers communicate investment strategies more effectively and support client understanding.
Some DFMs may also offer dual-branded communications and reporting, which can help reinforce an adviser’s own client proposition.
5. Examine the investment team and governance structure
The strength of an MPS proposition often depends on the quality and depth of the investment team behind it.
Key considerations may include:
The experience of portfolio managers
The breadth of supporting investment resource
Risk management oversight
Governance and decision-making structures
Succession planning and team stability
A robust investment process should not rely solely on one individual. Effective oversight structures and peer review processes can help ensure investment decisions are subject to appropriate scrutiny and challenge.
Advisers may also wish to consider the culture of the investment team. Collaborative environments that encourage debate and independent thinking can help strengthen research quality and investment outcomes over time.
6. Understand the DFM’s investment style and approach
Different DFMs may perform differently depending on market conditions, investment style and asset allocation preferences.
Understanding how a DFM approaches portfolio construction can help advisers determine whether the service complements their broader investment proposition.
Areas to consider include:
Investment philosophy and process
Geographic allocation biases
Active versus passive implementation
Style tilts, such as value or growth
Performance across varying economic environments
Many advisers choose to work with multiple DFMs to achieve broader diversification across investment styles and approaches. Combining managers with differing philosophies and return drivers may help smooth overall portfolio outcomes across market cycles.
Choosing the right DFM partner
Selecting a DFM or MPS provider is about more than performance alone. Advisers should consider how well a provider aligns with their business objectives, client needs, service expectations and regulatory responsibilities.
A thorough due diligence process can help advisers identify providers capable of delivering consistent investment outcomes, strong operational support and long-term value for clients.
Important Information
The information on this webpage has been produced for educational purposes. Retail investors should not act or rely on any information contained on this webpage without seeking advice from a professional adviser.
This is not intended as a solicitation, or an offer to buy or sell any security. The information on which the material is based has been obtained in good faith, from sources that we believe to be reliable, but we have not independently verified such information and we make no representation or warranty, express or implied, as to its accuracy. All expressions of opinion are subject to change without notice. The information on this webpage should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information on this webpage when taking individual investment and/or strategic decisions.
Capital at risk. The value of your investments and any income derived from them can fall as well as rise and you may not get back the amount originally invested. Past performance is not a reliable indicator of future results and may not be repeated. Forecasts are not a reliable indicator of future performance.
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