Greater confidence about passing on suitability risk would encourage many UK financial advisors to use a discretionary investment manager, according to Diminimis.

Four in ten financial advisors still carry out all investment services for clients in-house but the majority can be convinced to use a discretionary investment manager, according to a survey by research and due diligence service Diminimis.

More than half of financial advisors now use a discretionary investment manager, with 43 per cent using them to meet some of their clients’ investment needs and 9 per cent using them to meet all of them, according to the survey of 125 advisors in the UK.

Most advisors, however, can be persuaded to use a discretionary investment manager – or use them more – provided certain conditions are met. These include more competitive charging structures for 28 per cent of respondents, confidence in passing investment suitability risk to the discretionary investment manager (21 per cent), the ability to run clients’ investments more time efficiently (20 per cent) and knowledge that client relationships were safe from poaching (13 per cent).

“It is often cheaper and more efficient to use an investment specialist rather than do everything in-house, however a variety of factors are preventing many advisers from doing so,” according to David Gurr, founding partner of Diminimis. 

“Choosing a DIM to manage their clients’ investments is one of the biggest decisions an advisor makes and often the key objective is to pass on responsibility for investment suitability. However, we have found that it’s all too common for advisors to think that they are passing on investment suitability risk, when the agreements they have in place mean the opposite is true.”

Yesterday, Wellian Investment Solutions flagged that many advisors are partnering with unsuitable firms due to insufficient due diligence, namely a “worrying” number of advisors still measuring discretionary fund manager performance suitability on investment returns alone. 

“Historically, investment returns and short-term performance were considered to be far more significant factors in determining the overall success of a DFM portfolio. However, in today's turbulent market conditions, other factors such as risk profiling and asset allocation should form a far greater part of any due diligence process,” Wellian's chief investment officer, Richard Philbin, said in a statement.