Using multiple DFMs
New thread from a discussion elsewhere:
Basically, what is wrong/right/good/bad about using more than one DFM for the same client?
If you do it, how to you justify it?
@arongunningham had this point:
The issue that was raised, kind of unique, was a SIPP managed by 2 DFMs on a near 50:50 basis.
@Nathan mentioned stock overlap.
I added the following comments:
it isn't just stock overlap.
Given that we are looking at a SIPP, imagine that both DFMs are managing to broadly the same mandate of risk, term and objective. As a simplified example:
There are 4 stocks in a sector that can be used. DFM A holds two, DFM B holds the other two. The SIPP therefore holds all four. Now, imagine that the research analysts at each DFM think that the two stocks they don't hold offer greater potential for meeting the objective. So DFM A sells his two and buys the other two and DFM B does the same.
Outcome - client still holds all four stocks but has incurred trading costs and time out of the market.
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