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Deutsche Bank’s asset manager DWS inflated the amount of money it won from clients by billions of euros through an accounting approach that it failed to disclose for years, and which fed into executive bonus calculations.
Quarterly results for the Frankfurt-listed company, in which Deutsche Bank holds an 80 per cent stake, last month showed for the first time how it included so-called advisory mandates in its overall assets under management and annual flows.
Advisory mandates are a low-margin business, where an asset manager gives a client its view on matters such as asset allocation but the client makes its own independent investment decisions, and are distinct from higher-margin “assets under management”, where the company makes investment decisions on the client’s behalf.
DWS did not expressly disclose that its assets under management also included assets managed by third parties until late 2022 — months after former chief executive Asoka Wöhrmann was ousted — and that changes in the market valuation of advisory assets were counted in its flows. Even then, the practice was only referenced in a footnote.
The size of DWS’s advisory assets has grown disproportionally in recent years, according to the new disclosures and people familiar with historic data.
Three people with direct knowledge of DWS’s internal discussions told the Financial Times that the asset manager started to place significant emphasis on the acquisition of new advisory mandates when Wöhrmann took the helm in late 2018, months after the company floated.
Since its IPO, bonuses for executives and other staff have been directly linked to net flows.
DWS’s pay policy tasked executives with lifting net inflows as a percentage of assets under management by 3 to 5 per cent a year as one of four targets in their long-term incentive plans. In 2021 — the first year for which data is available — DWS management achieved 150 per cent of their inflow target.
DWS told the Financial Times that “advisory asset inflows, and in particular the inclusion of market movements when calculating them, have not had a material impact on executive compensation in any year.”
It is the second time since its 2018 IPO that DWS has faced questions about disclosure. Last year, DWS paid $19mn to settle charges with the US Securities and Exchange Commission about greenwashing, and an investigation by Frankfurt prosecutors into the allegations is ongoing.
The asset manager last month reported for the first time that advisory mandates made up 3.5 per cent of total assets excluding cash in 2023, up from 3 per cent a year earlier. In the same year, however, the disclosure shows that advisory assets represented 27 per cent of all net inflows excluding cash.
DWS has not disclosed data for advisory inflows for years before 2022.
But FT calculations based on data provided by insiders show that advisory assets accounted for at least a fifth of all DWS non-cash inflows between June 2018 and March 2024 — a breakdown not previously made public.
Advisory assets more than tripled to €29bn in that period, while total assets under management excluding cash rose 36 per cent to €856bn.
According to people familiar with the historic data, advisory assets lifted DWS’s reported net flows in all years since 2018.
In 2020, almost all of the €10.8bn in reported non-cash inflows were linked to advisory assets, the people said. That was mainly due to a multibillion mandate from Siemens which had been erroneously treated as an active multi-asset one, and was reclassified as an advisory mandate in late 2022, they added.
The overall impact on flows was “immaterial” in all other years, the people said.
After DWS restated the data for 2023, a €4.4bn inflow into the asset manager’s high-margin flagship “active multi-asset” strategy became a €1.7bn outflow when stripping out an advisory mandate for another German blue-chip.
Irene Rossetto, an asset management analyst at Keefe, Bruyette & Woods, told the FT that including changes of the value of advisory assets, including currency effects and market performance, in flows was “uncommon” and “does not appear to be in line with industry practice”.
DWS told the FT that despite changes to the definitions of net flows and assets under management in its financial reports, its internal definitions had “been consistent since prior to the initial public offering”, adding that “our annual reports and financial disclosure were always accurate”.
It added that “a general accounting standard for AUM does not exist”, saying: “we believe that our definitions and reporting are in line with peer practice”.
The group said that changes in disclosure since late 2022 were intended to “provide more transparency into the nature of our AUM and flows”.
Wöhrmann declined to comment through a lawyer. Deutsche Bank declined to comment.
