'Pressure of consumer duty is pushing more advisers to use DFMs'

Chris Law, head of UK sales at Morningstar Wealth, said the introduction of consumer duty last summer has added to the demand on advisers' time. 

He said: "Financial advisers and planners do an incredible job but have more and more demands on their time and resources.

"Consumer duty has been a major contributor to this over the past year or so."

Earlier this year, the Lang Cat's State of the Advice Nation found 71 per cent of advisers now outsource their investment propositions to discretionary fund management and managed portfolio services. 

It was the first time DFMs had proved more popular than firms running their own models on an advisory basis. 

Law said the introduction of consumer duty in July 2023 has played a role in this shift due to the need for "laser focus on client incomes". 

He added: "Separating financial planning and investment management enables advisers to focus on their clients and their plans, without any distractions.

"Outsourcing to a DFM MPS comes with a cost but the advisers we regularly speak with tell us that the benefits to their clients balance that out.

"Timely changes made across the whole portfolio, consistently remaining aligned with their risk profile and the additional time available to get to know and understand clients can improve both outcomes and experience."

Law went on to say segmentation is another area of the consumer duty which is helped by outsourcing investments. 

This is the practice of grouping clients based on a range of criteria. 

"The advice firm will still be responsible for selection and monitoring but is freed from the day-to-day running," said Law. 

"Different segments may require different solutions, such as ESG-based or in-retirement, which is a far less daunting
prospect where the firm isn’t required to do all the heavy lifting itself.”

tara.o'connor@ft.com

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