This year marks the 20th anniversary of discretionary fund management becoming a viable mainstream investment management solution for professional advisers.

The rapid growth of partnerships between Financial Advisers and discretionary managers (DFMs) is testament to the quality of outcomes provided to clients. In 2016 nearly half of the professional adviser community outsourced to a DFM for some or all of their investment practice.

This begs the question: why is outsourcing so popular? And what advantages can a partnership with a DFM bring to adviser businesses? The following article from Brooks Macdonald perfectly highlights three key benefits of partnering with DFM’s.

Three main advantages for advisers


1. Time

By outsourcing to a DFM advisers are able to focus on holistic financial planning, relationship and generational planning, as opposed to the onerous day to day task of investment management.

Advisers spend a significant amount of time carrying out administrative duties such as drafting reports, product research, fund research and obtaining valuations. When partnering with a DFM, certain administrative and fund research duties can be relieved enabling advisers to spend more time with clients and building their business.

Studies have also proven clients place significant importance on financial planning, rather than simply investment performance. While investment performance can be impossible to predict, as an adviser you must ensure you’ll deliver the best possible service to your clients, proactively managing the client relationship.


2. Risk

Advisers can deal with investment risk in one of three ways: absorb, avoid or absolve. To absorb the risk is to undertake discretionary investment responsibilities yourself, and risk being responsible for poor performance should such events occur. To avoid the risk would be to not practice at all.

When working in partnership with a specialist investment manager the adviser sits on the same side of the table as the client (as the author of their plan), and absolve yourself of risk of investment performance to the investment manager. This provides the best possible outcome for both you and your client, as you can hold the DFM in question to account and the client benefits from your independence in analysing portfolio performance.


3. Resources

Both independent financial planning and investment management are specialist skills. This distinction is critical in providing top quality wealth management and communicating to your clients exactly which services you provide to them.

Many DFMs have been practicing for a long period of time and have a great wealth of expertise and resources to pour into their investment process. For example, Brooks Macdonald have over 100 investment managers and therefore the skillset and resource to screen a huge universe for the best ideas.

Partnering with DFMs can also grant your clients access to institutional buying power not accessible to many advice firms. For example, Brooks Macdonald regularly includes a range of structured products, convertible bonds and income focused alternatives within client portfolios.

Are there any other benefits you can see by working with a DFM? Leave your comments and feedback below.


This article was created for the DISCUS website based on Brooks Macdonald‘s views on the benefits of partnering with a DFM. To find out more about their services, visit the Brooks Macdonald page on this website ›