UK fund managers can expect the axe from discretionary fund managers (DFMs) if they fail to perform within the first 12 months of being granted a mandate, according to new research.

DFMs, an increasingly influential distribution channel, are ruthless when it comes to underperformance with the average firm tolerating a mere 10 months of underperformance before replacing a manager, while half of DFMs say they would replace a fund manager who has underperformed for only six months.

A worrying fact if you’re a cyclical manager or simply a manager that has hit a bad patch with one or two wrong calls.

Despite fees and charges coming under increased scrutiny across all aspects of the industry, performance (89%) and perceived trustworthiness (92%) heavily outranked the importance of cost (64%) as a key factor in selecting a fund manager in the first place.

DFMs can often be a closed shop when it comes to selecting a new manager with almost half (49%) typically involving less than five people.

Meanwhile past associations with managers are important when it comes to the length of time it takes a DFM to hand out a new mandate.

Three in 10 (29%) DFMs admit to taking more than three months to award a new mandate to an asset manager they have had no past dealings with.

This number drops rapidly to just 3% of DFMs who do have an existing relationship with an asset manager, backing up the importance of trust.

CoreData’s DFM Research 2013 report reveals that despite the increasing focus on costs, DFMs still view a managers’ track record as the key factor in selection; however, the honeymoon period is a short one with DFMs displaying their ruthless streak by not tolerating any prolonged period of underperformance.

The figures also show the added pressure on a fund manager whose style is out of fashion as DFMs are unlikely to give them the time to come back into favour and make up for any potential losses.

One can understand why so managers are nervous about deviating away from the pack and perhaps reflects the tendency (and common criticism) of active managers for being benchmark huggers despite charging active fees.