A new report has highlighted some concerns about the criteria available to financial advisors when comparing discretionary fund management firms.

Compulsory reporting standards should be imposed on discretionary fund managers to help advisors make direct comparisons between them, according to a new report from MRM, a UK-based financial services PR consultancy.

Measures suggested by a panel of industry experts include using the same illustrative portfolio values and disclosing transaction costs within funds.

Lawrence Cook, director of marketing and business development at Thesis Asset Management, said: “I do think it would help advisors if there were agreed standards to which all DFMs reported. For instance, DFMs could all use the same illustrative portfolio values and disclose the previous twelve months of transaction costs that would have been applied to a portfolio of each value.”

Most advisors currently use a blend of qualitative and quantitative factors to compare DFMs but the lack of standardised data published by DFMs means advisors risk inadvertently straying from agreed client objectives, MRM noted. 

Third party providers, such as ARC and FE Analytics, offer data for DFMs but not all firms are subscribed to these. The panel did not agree subscription to these third party providers should be mandatory – they said this would adversely affect competition and innovation in the sector.

“We are concerned that some advisors and firms are unsure about just how much due diligence they need to do when it comes to looking into outsourcing options. This is a real worry given the direction of travel we have seen since RDR,” said Stephen Gazard, managing director at Sesame Bankhall Group.

“Some advisors we speak to erroneously believe outsourcing eliminates risk. They need to be aware that it is the specific agreements between the DFM and the advisor which will dictate where the risks and ensuing responsibilities lie.”

The issue of providing firms with objective data about their performance, and which does not fall prey to conflicts of interest and bias, remains a pressing one in private client wealth management. To seen an example of one firm operating in this space, Switzerland's Investment by Objectives, click here for this interview.