Research firm Defaqto believes the vehicles are challenging some of the widely accepted differences between the two approaches.
Historically, said Defaqto, the two have been seen as distinct high-level categories in the universe of outsourced investment solutions, with different characteristics such as minimum investment levels, the bespoke service approach of DFMs and more transparency with multi-manager funds.
Now, though, discretionary firms have begun to unitise their portfolios in the form of collective investment schemes. The advent of UDFMs has enabled discretionary managers to capture smaller pots of client capital and positively extends the client segment profiles generally served by discretionary managers, in Defaqto’s view. These can now compete head-on with the multi-asset and multi-manager funds in the funds market and UDFMs now align with multi-manager funds in many areas that have historically been key differentiators between the two methods.
Matt Ward, wealth management consultant at Defaqto, said: “We believe there are two overarching types of outsourced investment solution available to retail financial advisers: DFM and multi-asset funds, including multi-manager.
“However, the arrival of unitised discretionary fund solutions is challenging some of the traditional differences in approach. The success of multi-manager fund solutions over the past 10 years and the level of assets under management accrued by these funds has not gone unnoticed by discretionary firms. The launch of unitised discretionary funds will now see them competing directly for retail financial adviser business with multi-manager funds and other multi-asset solutions.”
