Discretionary fund management

Imnoexpert wrote: »

Sales pitch is that with brexit etc. Flexibility and speed and an expert in charge will be good.

Total rubbish. If that's the sales pitch then I would tell them to forget it.

There is no evidence whatsoever that any discretionary fund manager can beat the market. Rapidly and flexibly churning the portfolio is more likely to add cost with no benefit.

Whilst usually in agreement with dunstonh, on this point I have an alternative view. I am a fan of DFMs in the right circumstances.

As an IFA, my main role is planning, cashflow modelling, looking for the correct products to mitigate taxation and hence improve long-term growth, balancing and reviewing client objectives and ensuring clients remain on track for their long-term goals. The underlying investment strategy comes secondary to all of that. None of my clients are choosing me as an adviser because of my fund-picking skills.

Although they are far from suitable for every client, I do use three DFMs reasonably regularly, which one depending on client objectives and attitude to risk. All three have consistently outperformed trackers, mixed asset funds and other DFMs in their respective areas. I have found their performance is strongest, when compared to their peers, in volatile and falling markets.

Yes, there is an additional cost. However, as always, it is the consistent net returns for a given risk level that is a deciding factor, not just the underlying cost.

I have respect for IFAs that run their own model portfolios, and do well with them, and it is something I have done in the past. However, I found that focusing a lot of time on these model portfolios took my time away from my key objective of financial planning for my clients.

In a nutshell, I find my clients using DFMs paying a little more, and in return they have more relevant work done for them, and they tend to see stronger net returns.

Each IFA will have different processes, investment strategies and planning techniques. What suits my clients may not suit another adviser's clients and vice versa.

As to which client would do best, those in DFMs or those not? I would expect if they are both using a decent IFA, then they will do better over the long-term than the vast majority of those not using a decent IFA, and they can argue about any minor differences in their happy and wealthy retirement.

dunstonh wrote: »

with that.

My views on DFMs are perhaps tainted by the "Wealth managers" who put all their clients with the same DFM on the same platform with no off platform stuff or alternatives and still call themselves IFAs whilst charging large amounts themselves and using naff expensive DFMs (1% or thereabouts plus VAT on top) and gives lower performance. None of it done for any client benefit but done for their own laziness.

Those IFAs are the ones the OP, and others, need to be avoiding. They are not much more than appointed reps for the DFMs, and add very little value to clients.

Hopefully the FCA, who are constantly looking at whether individual IFA business are worthy of the title, will pull up those that aren't adequately fulfilling the "independent" part of their role.