Far too many DFMs are preoccupied with driving the amount of assets they have under their custody – and may be failing to see the bigger picture.

This is the view put forward by Tony Allan, LGT Vestra’s head of IFA sales, who believes that DFMs need to be custody-neutral in order to support the wide and varied needs of their adviser partners. However, in reality some investment management firms are too preoccupied with gaining custody of as many adviser assets as possible.

“It shouldn’t be about how many assets you can give to a DFM. It should be about how many assets you have under your influence, under your control – and control is an important part of that,” Allan explained.

In his opinion, having control over your assets is what ultimately maximises the valuation of an adviser’s business.

He suggests that it makes sense for an advice firm to place assets from its core investment proposition and model portfolios (regardless of whether they are managed in-house or externally by a DFM) onto the platform of their choice.

“The time you would potentially outsource to a DFM is when you have a complex investment strategy, where it might not be that efficient on a platform,” he explained.

For example, if it is a complicated trust, final salary pension or an institutional mandate it may work better to custody the assets with a DFM.

To find out more, check out the video below (it is four minutes long) – or you can see the summary below.

Here’s what Tony said…

“The big debate is where should one’s assets sit to maximise the value within an IFA business. It is very clear in my view that putting assets onto a platform means clear and precise funds under management. When we look at behaviour patterns of IFAs transitioning from platform to platform, there is a clear shape where you ask an IFA – what is the value of your assets under influence? And they can give you an answer.

“When you look at that, you can see it is really important for a DFM to be custody neutral. It shouldn’t be about how many assets you can give to a DFM. It should be about how many assets you can have under your influence, under your control – and control is an important part of that.

LGT Vestra’ view on asset custody

“We have made a special effort to make sure that we are custody neutral across as many platform providers as possible. Therefore, you have a consistent investment proposition across a varied number of platform providers.

What approach should advisers take?

“I don’t think you should be looking at using a DFM to maximise your valuation in terms of the custody you have with a number of different DFMs. DFMs predominantly look to have assets in their control, but I think you should have both – assets on a platform, and where you can’t they should be with a DFM.

Platforms vs DFM custody

“Differentiating when you should use a platform and a DFM in its own custody are quite interesting stories that I have seen in terms of maximising the potential. Anything that is in your core investment proposition in theory should find itself on the platform of your choice, as well as your model proposition – whether this is in-house or you outsource to a DFM. The fact is, the core part of your business sits on a platform.

“The time that you would potentially outsource to a DFM is where you have a complex investment strategy, where it might not be that efficient on a platform. An example is where you have a complicated trust that doesn’t sit well in a platform structure. Another example is where you have a GIA (general investment account), which might have direct equity exposure or a varying collection of investment instruments which don’t sit favourably on a platform.

“Looking at final salary pensions, institutional mandates – this is an area that I think has really come to a head in the last few years. Again, it is an area that does not sit well on a platform and is very much complemented by sitting with custodied DFM. The developments within the platform arena are very much geared towards the generic advice that you would give to a client, which is very personalised, it is driven by individual taxation rather than institutional, corporate taxation and some of the offshore mandates we see as well.

If you want to maximise potential sale value…

“Have control of your own assets. By having control of your assets, you are maximising the valuation of the business – don’t give it away.”


This article was created for the DISCUS website following a discussion with Tony Allan, head of IFA sales at LGT Vestra. You can find out more about their investment services on the LGT Vestra dedicated page