As a result of the Retail Distribution Review, discretionary fund managers in the UK are becoming extremely ruthless and are more likely to axe fund managers if they fail to perform within the first 12 months, according to new research by CoreData.

The research found that half of discretionary fund managers said they would replace a fund manager who has underperformed for only six months, whilst the average firm would tolerate 10 months of underperformance before replacing a manager.

The cost and regulatory pressures of the RDR are continuing to hit the IFA market and have sparked a rise in the use of discretionary fund managers.

According to CoreData, 38 per cent of advisors will outsource some or all of their investment services to a discretionary fund manager by the end of 2013. CoreData said this trend is increasing pressure on discretionary fund managers to become tougher on performance.

The study, which interviewed 100 discretionary fund managers throughout February and March 2013, revealed perceived trustworthiness (92 per cent) and performance (89 per cent) were seen as the most important qualities when selecting a fund manager, heavily outranking the importance of cost (64 per cent).

CoreData’s report reveals that despite the increasing focus on costs, discretionary fund managers still view a managers’ track record as a key factor in selection, with 30 per cent deeming this the most important factor.

“This research shows that despite the increasing focus on costs, DFMs still view a managers’ track record as a key factor in selection. However, the honeymoon period is a short one, with discretionary fund managers displaying their ruthless streak by not tolerating any prolonged period of underperformance," said Craig Phillips, head of UK and Europe for CoreData.

“The figures also reveal the added pressure on fund managers whose style is out of fashion as discretionary fund managers are unlikely to give them the time to come back into favour and make up for any potential losses,” he added.