Discretionary Fund Managers question

Cus

I currently have a sipp with a broker who decides / controls what funds and individual shares to put in my portfolio.  It costs me 1% a year.  I don't have an IFA.

Is this what you would call a Discretionary Fund Manager?  

Do they need to pay VAT (I am being charged)

TIA

barnstar2077

Cus said:

I currently have a sipp with a broker who decides / controls what funds and individual shares to put in my portfolio.  It costs me 1% a year.  I don't have an IFA.

Is this what you would call a Discretionary Fund Manager?  

Do they need to pay VAT (I am being charged)

TIA

Have you considered doing it yourself?  How many years are you away from needing the funds?  A simple global index fund might be all you need.

dunstonh

I currently have a sipp with a broker who decides / controls what funds and individual shares to put in my portfolio.  It costs me 1% a year.  I don't have an IFA.

Is this what you would call a Discretionary Fund Manager?  

It could be a broker.  It could be a DFM but 1% is high for a DFM.  Normally they are around 0.2x% to 0.3x%.

Do they need to pay VAT (I am being charged)

DFMs are non VATable  but that only changed in 2021. 

Cus

barnstar2077 said:

Cus said:

I currently have a sipp with a broker who decides / controls what funds and individual shares to put in my portfolio.  It costs me 1% a year.  I don't have an IFA.

Is this what you would call a Discretionary Fund Manager?  

Do they need to pay VAT (I am being charged)

TIA

Have you considered doing it yourself?  How many years are you away from needing the funds?  A simple global index fund might be all you need.

Yes, but so far they have done better than I would have done based on my benchmarks (what I would have done otherwise)

Cus

dunstonh said:

I currently have a sipp with a broker who decides / controls what funds and individual shares to put in my portfolio.  It costs me 1% a year.  I don't have an IFA.

Is this what you would call a Discretionary Fund Manager?  

It could be a broker.  It could be a DFM but 1% is high for a DFM.  Normally they are around 0.2x% to 0.3x%.

Do they need to pay VAT (I am being charged)

DFMs are non VATable  but that only changed in 2021. 

Thanks, so what actually distinguishes a DFM from a broker?  They say my portfolio is bespoke to me...

barnstar2077

Cus said:

barnstar2077 said:

Cus said:

I currently have a sipp with a broker who decides / controls what funds and individual shares to put in my portfolio.  It costs me 1% a year.  I don't have an IFA.

Is this what you would call a Discretionary Fund Manager?  

Do they need to pay VAT (I am being charged)

TIA

Have you considered doing it yourself?  How many years are you away from needing the funds?  A simple global index fund might be all you need.

Yes, but so far they have done better than I would have done based on my benchmarks (what I would have done otherwise)

If they are using managed funds then they are only improving performance by increasing the risk. 

dunstonh

Thanks, so what actually distinguishes a DFM from a broker?  They say my portfolio is bespoke to me...

DFMs offer their portfolio range to everyone.  You would need a significant amount of money to get a bespoke portfolio.   DFMs can use direct holdings as well as funds.   

I suspect a broker is unlikely to use funds as they would then likely fall under IFA or DFM territory. Brokers tended to be direct assets only.  However, it is very unusual for someone to use a broker nowadays for bespoke portfolio building.   Tends to be very high net worth only.     There is also the argument that if they have 100 clients, the regulatory requirements nowadays make it difficult to have 100 bespoke portfolios.  Putting aside risk differences that may see 10-20 portfolios, if portfolio 45 is good for one person of a certain risk level why it is not good enough for another person with the same risk level.   Bespoke is a word that is often used in marketing rather than in reality.

What does it say on their website/business card?    Does the FCA register give an indication of their regulatory permissions.

Cus

Looked at the FCA, they are a branch of Raymond james that can invest in basically any type of regulated and non regulated product it seems.

dunstonh

They appear to be active in a number of areas but in respect of investing they badge themselves as wealth managers/ Financial Advisers.  i.e. FAs.     Not single tied like SJP and not independent like an IFA but something in between.

Because_I_Can

dunstonh said:

I currently have a sipp with a broker who decides / controls what funds and individual shares to put in my portfolio.  It costs me 1% a year.  I don't have an IFA.

Is this what you would call a Discretionary Fund Manager?  

It could be a broker.  It could be a DFM but 1% is high for a DFM.  Normally they are around 0.2x% to 0.3x%.

Do they need to pay VAT (I am being charged)

DFMs are non VATable  but that only changed in 2021. 

Hi Dunstonh, 

I have a DFM arrangement in place currently, completely bespoke to me so VAT is charged which I understand is correct.  On a portfolio of around £1.6m, I’m paying 0.65% plus VAT of 0.13% - does that rate sound in the right ball park for my type of arrangement and pot size?  

On a side note, my FA charge was reduced to 0.35%.  I’m also exploring a potential move to an IFA at some point this year. 

dunstonh

I have a DFM arrangement in place currently, completely bespoke to me so VAT is charged which I understand is correct.

I just looked it up.  However, there are still differences of opinions in some areas but from what I can see.....  DFMs that are arranged without an intermediary (i.e. IFA / FA) are still VATable.   Where there is an intermediary, they are non-VATable.   

A second stage to that where there is a model portfolio and is using a fund style structure (so not bespoke), then they are exempt from VAT.  This was to allow a level playing field.   Bespoke portfolios are VATable.

On a side note, my FA charge was reduced to 0.35%.  I’m also exploring a potential move to an IFA at some point this year. 

That will likely become more common as the FCA is apparently preparing to run a review of adviser charging and what people are getting for their money.    Mainly on the back of the number of firms that are using DFMs nowadays and getting the client to pay for it on top of the IFA/FA charge that isn't reduced despite the adviser doing less work.