What’s a DFM and How Do They Work With Your IFA to Grow Your Wealth?

Our Job As Independent Financial Advisers Is To Help You Maximise Your Investment Potential

As independent financial advisers, we are responsible for making recommendations on how to achieve your investment goals. As a consumer of financial advisory services, you deserve to feel that your IFA takes the time to truly get to know you, understand your unique set of circumstances and goals, and help you make the most appropriate decisions.

Our main job is to achieve insight into how we can best utilise all available investment opportunities to achieve optimal wealth management for you. So, by outsourcing multi-asset solutions, your financial adviser can hand over the daily job of managing your money, and instead focus on service delivery.

What this means for you is that we can really take ownership of our advice. We move to sit on the same side of the table as you, holding the appointed DFM to account and making adjustments and recommendations where necessary.

We always research our fund managers – choosing only the best and most reliable. And in this sense, a DFM can also hold us to account, giving unbiased reasons why we might reconsider recommendations in light of new information. It’s an extra layer of protection, skill and expertise to help you maximise your investments.

Understanding How Discretionary Investment Management Works

A Discretionary Fund Manager is an investment professional who builds and manages a portfolio of investments on your behalf. Based on the recommendations from your trusty financial adviser, they build and manage an investment portfolio that’s totally tailored to you. They’ll base their decisions on:

• Your background
• Any political, social or environmental preferences
• Your financial planning goals
• Your tax position
• Your risk appetite
• The amount you have to invest

Once they understand your position, they’ll build a bespoke investment solution on your behalf. Your DFM will discuss this in detail with you or your FA, depending on your preference. Then the investment strategy will be agreed.

You are in control of how involved you’d like to be, and this will often depend on how strong your opinions and preferences are.

Ongoing Management By A DFM

Once your portfolio has been built, your DFM will be responsible for regularly reviewing it to ensure it’s staying on track. The extent to which you are involved depends entirely on you. Some clients like daily updates, some are happy with quarterly reviews – others just want a heads-up from their FA if anything major happens.

What Options Do You Have When Using A DFM To Grow Your Investment Portfolio?

You can choose to have a DFM manage your entire portfolio, or just a part of it – this will depend on how much time and effort you want to devote towards managing your own investments versus having someone else do it for you.

A good example would be if you wanted to invest in shares but didn’t have time or experience doing so; you could ask your financial adviser (FA) whether they could recommend someone they trust who would manage their shares on their behalf while still being able to provide advice when needed.

You can also decide how much control your DFM has. But, to work to the best of their ability, DFMs should have the authority to make ongoing, independent decisions about your portfolio at their own discretion. Hence the moniker.

Ultimately, letting go of the reins means that you’ll have a dedicated investment professional with an ear to the ground at all times ready to make split-second decisions about how to maximise your account – without having to hang around waiting for permission. This means opportunities can be seized rather than missed.

DFMs are, like us, totally independent. They’re paid by you, or as part of your agreed package with your FA. They aren’t paid or incentivised to sell any particular products, so this keeps them honest. Their personal success is based on your financial success.

Why And When Would Your FA Put You Forward For Using A DFM?

As a rule, the larger your portfolio the more likely you’re going to need one.

You should use a discretionary fund manager if:

You want to take control of your investments, without getting your hands dirty

A DFM will be able to make decisions based on their experience, knowledge and research, rather than following a pre-set investment plan – which could be more suitable for someone else with different goals and risk tolerance levels.

You have an investment portfolio in excess of circa £250,000

This isn’t a hard and fast limit, but it’s the point at which we’d start to consider an investment portfolio large enough to warrant the services of a DFM.

You are taking a long-term approach to your investments

If your time horizon is under five years, then it could be that you’re unlikely to benefit from a DFM. The real benefits are felt when portfolios are managed over a long period of time, allowing for short-term fluctuations and risk-taking to achieve optimum long-term growth.

You have overseas interests and are looking for an offshore DFM

If you’re looking for a platform that offers more than UK equities, there are some platforms that offer access to offshore bonds and funds, ETFs, structured products and direct equities as well as currency and cash account facilities. The best route to investment success for expats with large or complex wealth management needs is through an international financial adviser who can also provide access to such DFM platforms.

What are the risks of discretionary management?

Really, the risks of using a DFM are the same as any other method of investing your money – there are no guarantees. Investment returns are never guaranteed, and DFMs don’t offer any kind of guarantee – just like IFAs.

When you have a great relationship with your IFA, remember they will only be outsourcing or referring you to DFMs whose expertise and results speak for themselves and reflect positively on their own service. We always do our due diligence when selecting DFMs to work with, to ensure the safety of your assets and our reputation.

What Will A DFM Cost Me?

Always of the utmost importance – how much will a DFM set you back? There’s no straightforward answer because every single client and investment portfolio is different. But, as a rule, DFM charges vary from 0.5% and 1.8% per annum, depending on the size of your investment and the volume of transactions required in its management. Well worth the potential returns.

Our expat financial advisers can help international investors, savers and retirees by providing access to expert-led discretionary fund management services. We look forward to helping you grow your wealth. Contact us today for more information.