Compulsory reporting standards are needed for DFMs to make direct comparison easier for advisers, industry experts have suggested.

A panel suggested measures such as using the same illustrative portfolio values and disclosing transaction costs within funds as possible solutions.

Barry Neilson, business development director at Nucleus and Gillian Hepburn, director of DISCUS, were among those contributing to a new report on the subject from financial services PR consultancy MRM.

The report examines the threats and opportunities in the maturing DFM industry - which has seen rapid growth since the implementation of RDR.

Concerns have been raised by some in the industry about the criteria available to advisers to compare and assess different DFM firms.

Most currently use a blend of qualitative and quantitative factors but the lack of standardised data published by DFMs means advisers risk inadvertently straying from agreed client objectives, the authors of the report suggested.

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Despite support for compulsory reporting standards, the panel did not agree that subscription to these third party providers should be mandatory, believing this would adversely affect competition and innovation in the sector.

Lawrence Cook, director of marketing and business development at Thesis Asset Management said: “I do think it would help advisers 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.”

Ms Hepburn said: “While better ways of comparing charges and performance would help, they are usually not the only factors when it comes to identifying the most suitable proposition for a client. There should be more standardisation of the disclosure of costs within funds, including managers’ fees and other operational costs as well as dealing costs.”

The panel outlined other concerns and areas that need attention in the DFM sector from their firms’ point of view.

Stephen Gazard, managing director of Sesame Bankhall Group, said: “We are concerned that some advisers 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. Some advisers we speak to erroneously believe outsourcing eliminates risk. They need to be aware that it is the specific agreements between the DFM and the adviser which will dictate where the risks and ensuing responsibilities lie.”

Paul Miles, principal of Silverback Consultancy, said: “In my view, the risk mapping should be carried out by the DFM and not paid for by the DFM to a risk mapping provider. Part of the due diligence process is for the financial adviser to understand on what basis their clients’ money will be managed to take risk into account; this is arguably the most important aspect of investment.”

Mr Neilson said: “I think we might see more instances of DFM businesses which are either evolved or created to serve the needs of a small number of advisers. A number of advisory businesses who know each other quite well but don’t necessarily want to seek their own DFM permissions might get together to help set up and seed assets into a DFM.”