The perennial challenges of leading a DFM business

Simon RoderickResearch, insights & industry news

The challenges of leading a DFM business

The perennial challenges of leading a DFM business

We’ve met a lot of CEOs and management teams, and while the macro events may differ, the challenges at DFM company level often remain the same.
I’ve been in City recruitment since 2000, but I really started working very closely with the DFM community in 2007. I’ve placed teams of investment managers, many intermediary sales professionals, financial planners, compliance, and heads of finance. Within reason, I’ve worked across most major functions within DFMs. Today, I’m delighted to say that my colleague, Kelly Biggar, a ten-year veteran of Fram, has taken my initial work to the next level.  Between us, I think we’ve seen most scenarios, we’ve met a lot of CEOs and management teams and while the macro events may differ, the challenges at DFM company level often remain the same. In this brief article, I want to cover some of these themes. Why? Well running any business is often lonely. If you’re lucky you’ve got some trusted peers you can discuss the industry with, but quite often most leaders find their role quite lonely, politics sometimes coming before camaraderie.

AuM growth

Front and centre of every leader’s thinking is AuM growth. I wonder how many hours of lost sleep wealth management leaders have accumulated wondering how they can grow AuM. Besides market performance, some firms really struggle with growing AuM and yet scale and AuM solves many problems. Leaders spend time pondering a route forwards, with I’m sure some swinging dramatically from buying competitors to selling themselves. My focus in this article isn’t on focusing on how to sell your firm, but simply to run through the options firms have for growing AuM.

There are numerous strategic routes to growth. Can they be executed on simultaneously? Yes, but this very much depends on the quality of your management team. In Jim Collins’ outstanding piece of research “Good to Great”, companies he studied which made this transition spent huge amounts of time on finding the right people before finding the right strategy. In short, with great people you will work out the right direction to go in. Occasionally we’ve seen firms decide to embark on an acquisition strategy, yet their team aren’t equipped a) to lead the origination process b) to integrate the newly acquired business (if they even get this far) and c) the team doesn’t have the energy or willingness to make the inevitable sacrifices required to work in this intense environment. Analysing the team before formulating can at first seem wrong, but it’s actually correct when you think about it. Intelligent, resilient, candid, and human people can achieve a lot in most environments.

"We make our best investments in the more difficult periods."

Assessing your existing team leads well into two areas which can increase AUM, hiring for growth and increasing productivity of your existing team. Without a doubt, our experience is that firms who made big-moves just after the financial crisis significantly increased market share in the recovery. In McKinsey’s article “From tailwinds to crosscurrents: Resilient growth in wealth management” they make the same point. As investment banking revenues have tumbled, the Jefferies CEO is on record as saying this is when they pick up some of the best people "Jefferies has "historically taken advantage of disarray and dislocation," he said. "We make our best investments in the more difficult periods."  Where DFMs have failed to execute this strategy well, it’s because they’ve had a less than compelling employee value proposition (EVP). Too many of the unsuccessful haven’t backed their own strategy sufficiently, trying to de-risk hiring for themselves to the point where the risks are too great for the prospective joiner. Hiring a team is the second fastest way to grow your business, it’s also the second most expensive, but significantly cheaper and less disruptive than making an acquisition.

Accompanying the above strategy is sometimes the criticism that a business can have too many “farmers”. It’s hard to build a scalable business around star networkers, they’re hard to find, the post-pandemic world is less connected. When we dig deeper into how teams are operating, it’s often quite apparent that firms have some great people, but they very little marketing support, receive virtually no ongoing sales training, rarely share best practice, and therefore these great people are a well-kept secret. A small sprinkling of marketing water, would make the referral plant grow.

We are in no doubt that these strategies are hard to execute in the current environment. Sideways markets, staff costs increasing, and fee compression are making things hard. Our experience is that larger firms cope better in this environment, and small too, but the middle is hard place to be and many DFMs operate in the middle. In terms of sideways markets, in many ways this is a UK and European issue and therefore a review of allocation to overseas markets and less home bias would help many firms. Again, this comes back to team training, how to coach clients through allocation decisions, how to educate that cash in the long run is more risky than equities. All of this takes time, money, structure, and marketing support.

DFMs with in-house advisers

I think for the most part we’re over this debate i.e. can an investment manager with in-house financial planners offer DFM. However, it does figure still in some leaders’ thinking. In my experience, the vast majority of firms have suffered no negative effects from managing these two interests. Another Fram veteran, Chloe Tillman, covers this space very well. Our advice to firms entering this space is to back their strategy appropriately. Choose your entry point carefully, ensure that the project is supported enough to flourish, and treat the sales team with the same respect as the investment team. Also, understand the potential contribution a good sales team can make to overall AuM. Often their potential is far greater to gather assets is far greater than an investment team. This leads us into one of practical benefits of a diverse team. Sales professionals ideally want a choice of investment managers to take to meetings, tailoring who they invite based on who will resonate with and understand the client the most.

There are of course many other challenges the modern DFM leader has to give great consideration too: regulation, cyber-security, ESG, competition and differentiation, and of course market volatility. Each one important, each one worthy of more analysis, but for the most part increased AuM will often decide if the firm thrives of fails.

For more information on Fram’s Wealth Management practice, please contact Kelly Biggar at [email protected] or 01525 864 372.

About Fram Search

Established in 2010, Fram Search is a specialist financial services recruitment consultancy. We focus on mid-to-senior hires in the UK and internationally. Fram has one of the leading Wealth Management recruitment Practices in the UK.

We provide high quality contingent and retained recruitment services to boutiques and global brands. We have long established relationships, outstanding market knowledge, and access to deep talent pools. Fram takes a highly consultative approach, combining outstanding tech with a human approach. We are proud that our contingent fill rate is nearly three the industry average and we augment our retained search methodology with rigorous psychometric testing. We take ESG seriously, we are champions of diversity and all staff have undertaken unconscious bias training, we also carbon offset.

Please contact us on 01525 864 372 / [email protected] to learn more.

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