The new service is headed by Jason Dewar and Ian Clarke, who both recently joined the firm from Sesame Bankhall, where they were part of the research department. The moves followed a deal whereby DT was appointed Bankhall’s preferred investment technology partner.
The duo report to Chris Fleming, director of DT asset and risk modelling under a structure that “ensures the fund research aligns consistently with the 10-year proven process of Dynamic Planner”, the firm said.
Designed specifically for users of Dynamic Planner, the ACE ratings, like other quantitative fund research, identify funds that have delivered superior risk-adjusted performance in their own right versus their Investment Association peers.
Uniquely, they also evaluate funds’ consistency against Dynamic Planner’s assumptions, including “frequency of outperformance and tracking error analysis versus the DT model over defined periods”.
“Dynamic Planner users are effectively applying the underlying model assumptions for their investment process. Combining these attributes of consistency and efficiency into a clearly calibrated framework of 1-4 ACE ratings, means they can profile and manage all in one place,” the firm said. The company expects only 20% of funds it screens will qualify for an ACE rating and asset managers will not have to pay to have a fund ACE-rated.
However, a separate licensing agreement will be needed if the asset manager wishes to use the ACE rating logo externally in their marketing collateral.
The ratings will be deployed into the portfolio suitability hub of Distribution Technology’s Dynamic Planner product on 8 January 2016
Asked why the firm decided to set up the fund ratings service, DT managing director Ben Goss told Portfolio Adviser the development had been driven by client demand.
“We are already doing the asset allocation and a number of clients kept asking us if we could help with the next step in the process, recommending funds,” he said.
The move is unsurprising given the increasing pressure on advisers to demonstrate robust due diligence controls in their investment advice process and the growing popularity of risk-profiled portfolios.
And with the FCA putting more emphasis on ongoing suitability, the need to demonstrate that any funds selected continue to perform the role they were selected for, rather than solely demonstrating out- or underperformance, is likely to increase.
Given it is currently limited to DT’s existing client base, the service is unlikely to unduly worry incumbent agencies, but it does add an interesting new player and a novel financial model to the scene.
In a world where the universe of funds continues to expand and the pressure on advisers to pick the ‘right’ funds for clients continues to mount, that is certain to be welcomed.
