Combining skills with DFMs to tailor advice

By working in partnership with a DFM, advisers can draw on their complementary skills for the long-term benefit of their clients and their businesses.

For some advisers, investment management is a core part of the personal service offering to clients. They have the expertise, regulatory permissions and business set up to do this.

But many adviser firms are not large enough to allow for dedicated investment specialists. They cannot cope with the huge administrative burden of reporting and rebalancing, which requires them to obtain permission from their clients before any changes can be made to the portfolios.

As the range and complexity of available investment opportunities continue to grow, many advisers do not have time for the extensive research into products, companies and markets to make properly informed decisions. Nor do they have the resources to respond swiftly to new developments, surprises such as a fund manager departing, or to changes in market conditions.

To work as a true partnership there needs to be a sharing of information between the adviser and DFM Gareth Johnson, Brewin Dolphin

For these advisers, collaborating with appropriate third parties to implement the financial plan with investment management tailored to the individual client is the natural next step.

Getting help from experts can add real value to the offering to clients by providing access to institutional-level investment processes and systems that wouldn’t otherwise be possible.

A DFM has access to tools and resources that allow it to look at the economic situation and current market and decide the best long-term strategic and short-term positions within the parameters of the overall strategy.

It can also rebalance regularly to ensure that asset allocation remains in line with the client’s risk profile and capacity for loss. In short, working with a DFM can take away the administrative burden of managing clients’ portfolios, while still ensuring that the advice meets their regulatory responsibilities.

This may be a fully bespoke service where the DFM collaborates with the adviser on each client to understand their circumstances and financial objectives, as well as tolerance for risk, expected return, income requirements, tax position and any relevant ethical views.

Or it may be a managed portfolio service providing structured fund management via a range of risk-rated portfolios to clients for whom a bespoke service may not be necessary or cost-effective.

In both cases, to work as a true partnership there needs to be a sharing of information between the adviser and DFM to ensure a mutual understanding of the desired outcomes.

For the adviser this means challenging the investment managers as part of the initial due diligence and on an ongoing basis, and getting under the bonnet of the investment process to understand the real risks and volatility.

Working as a team to deliver the best investment solution allows both parties play to their strengths while keeping an eye on the bigger picture – the client. The DFM supplies the expertise in managing the investments, while the adviser controls the process and the client relationship, and both monitor the portfolio to ensure the goals are being met.

By being clear on your areas of expertise and bringing in outside experts with different but complementary skills to work together as a team, the combined result can be a more powerful business and one that is more likely to grow.

Gareth Johnson is head of managed investment services at Brewin Dolphin