There are investment firms calling themselves discretionary managers that only offer unitised portfolio solutions.
It is rather a grey area as to whether these funds should be viewed simply as multi-manager or multi-asset funds, or in a category of their own. Arguments can be made both ways.
In terms of taxation these unitised discretionary options are the same as other authorised collectives, so it is likely that the regulators would expect them to be considered together both initially and in terms of longer-term monitoring.
Unitised discretionary funds that no longer have segregated portfolio equivalents can be difficult to identify. They would tend to have longer-term investment horizons, set firm parameters with regards to risk and volatility and may well be marketed as a discretionary solution.
In these respects, unitised discretionary funds, particularly where there are no segregated equivalents, should not be considered in isolation.
Advisers will need to be able to justify why clients are being invested into unitised discretionary funds over, say, lifestyle funds run by investment firms that do not have a discretionary background.
If an adviser has selected a discretionary manager for their investment capabilities and compatibility with the risk tolerances, needs and goals of their clients then it really shouldn’t make a difference if the service is bespoke, model or unitised.
However, simply using a unitised version of a discretionary service for convenience and to avoid researching other lower premium options will probably not satisfy the regulators.
Robust due diligence does need to be carried out by advisers, particularly as there can be subtle differences in investment approach depending on which service is chosen. Like the segregated portfolios, the long-term approach to investment does mean that getting it right at the start should result in advisers being confident about staying with the managers for some time.
Unitised or not, the process of due diligence is going to be similar for each option.
Of the three discretionary alternatives, the unitised solution, by its nature, is less reliant on the service aspect. There may be many good reasons for selecting a discretionary manager but if personal service is important the client will probably not be persuaded in to a fund, even if it is run by a discretionary manager.
An adviser will always have to take into account the needs and goals of their client. But they should also consider the client’s preferences. Although potentially managed in the same way, and possibly by the same team and even with a high likelihood of the same outcome, the service offerings of bespoke, model and unitised portfolios are very different.
Fraser Donaldson is insight analyst for funds at Defaqto
