What's the real value of Discretionary Managed Portfolios for financial advisers?

Following our recent post on the Four key things to look out for when choosing a DFM we felt it would be beneficial to take a closer look at service delivery, as invariably that’s the primary factor in the decision to outsource investment management. FOR ADVISER USE ONLY.

19 August 2020

The growth of Discretionary Fund management has been well documented, as have the reasons behind it - such as the time that’s required to research the whole market or the administration and risk that’s required during rebalancing and switching if working on an advisory basis. Following our recent post on the Four key things to look out for when choosing a DFM we felt it would be beneficial to take a closer look at service delivery, as invariably that’s the primary factor in the decision to outsource investment management.

Insourcing has become a buzzword in recent years with many advisers disliking the term outsourcing because it implies that they have handed over control or abdicated responsibility for their client’s investments. However, the term isn’t clearly defined and the difference between the two approaches can often be minimal and in name only. At their extremes, insourcing implies more of an advisory approach, with the adviser having more control over their clients’ investments. At the opposite end, with a pure outsourced approach, the DFM would have direct relationship with the client, often via a “reliance on others” contractual agreement. It’s important to remember that as their financial adviser, the ultimate responsibility for your clients’ investments lies with you, even under a “reliance on others” agreement.

Of course, using a DFM doesn’t mean that you need to hand over complete control of your clients’ investments. Partnering with investment professionals via a managed portfolio service under an “agent as client” model allows you to maintain 100% ownership of your client relationships, whilst still enjoying the time and cost savings and the investment expertise of the outsourced relationship.

Unlike many DFMs who run a direct to consumer proposition alongside their discretionary investment management, FE Investments only works with financial advisers. This means we have no direct contact with clients under any circumstances, unless directed by the adviser.

Whatever approach you take when working with a DFM, regular governance reporting, such as fund reviews, portfolio volatility monitoring and rebalancing reports are a prerequisite and should form an integral part of their service level commitment. The ‘10% drop’ rule has added to the communication obligations of financial advisers and the dramatic market falls of March 2020 also highlighted the importance of a proactive and responsive account management team at your chosen DFM.

The service you get from your DFM should go above and beyond what is necessary in terms of ongoing due diligence, as what you are essentially paying for is access to the discretionary manager’s ‘best thinking’, risk management oversight and expertise." 

Access to the investment team is vital so you should know how you can reach their team and most importantly, how frequently you can speak to or hear from them. But remember, an investment update that is so complex that neither you nor your client can understand it, is of no use to anyone.

Performance will always be an important factor when reviewing your chosen DFM, however it’s important to remember that you have partnered with a DFM for ongoing investment risk management too, in order to free your time up to focus on helping your client meet their long term financial goals. Advisers should consider their discretionary partners as experts who complement their overall client proposition. It doesn’t matter how great their performance is if they aren’t doing the things that you brought them in for in the first place, which is to give you tools, and more time to better service your own clients.

Bringing on board the DFM should always add even greater value to your client relationships. Good governance reporting will enhance your investment knowledge and equip you with high-quality investment analysis and resources and keep you up to date with markets, so you are able to advise your clients appropriately.

FE Investments

FE Investments’ award-winning Managed Portfolio Service is designed to add maximum value to a financial adviser’s business.

With FE Investments, the adviser retains control of the provision of services, the focus is always on positioning you as the primary service provider. We won’t baffle your clients with unnecessary terminology, and we will make it easy for you to explain your recommendations.

We provide you with client reports which are designed to be clear and distinctive, helping your client understand their finances. You also have the option to white label our reports, so they are in your firms own branding, giving you the flexibility to present our investment expertise as a fully integrated part of your service.

You can learn more about our award-winning service and how we work with financial advisers by clicking here.

Alternatively, if you’d like to better understand how FE Investments can align with your business or learn more about our investment philosophy, process and portfolios, please get in touch to speak to one of our experts.

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