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DFMs role in 2016 financial planning

This article is part of
Guide to Discretionary Fund Management

DFMs role in 2016 financial planning

Historically discretionary fund management was seen as an option for high net worth clients only.

One feature of DFMs over recent years has been their increased accessibility to investors with smaller portfolios.

Indeed, from this year (2016), Guy Stephens, managing director of Rowan Dartington Signature, says DFM services are now available from as little as £10,000.

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He says at this level a DFM will be a multi-manager type offering but without the unitised structure although some are unitised for ease of transacting.

Mr Stephens says direct equity investing would not normally be justified for savings pots of less than £100,000 due to the transactional costs of buying and selling direct stocks when a minimum of at least 20 holdings are required to gain sufficient company diversification, along with other asset classes.

He adds DFMs should only be used where the client can commit the investment for at least three years as the whole point of the discretion is to react to market opportunities and that usually means in the equity market.

Mark Barrington, director of the managed funds service at Waverton, agrees DFMs are being viewed as an option for a growing number of investors, for whom this approach would have been ruled out in the past.

Mr Barrington says a good example of the benefits from this are in terms of the new pension freedoms.

He claims investors at or near retirement can now access DFMs for pots of about £250,000.

As a result they can enjoy a tailored and flexible income stream and growth strategy, Mr Barrington says.

Another trend that has seen DFMs become more accessible in recent years is investors with a financial adviser can also access a range of DFMs through third party platforms with no minimum investment requirement.

Mr Barrington says this gives all investors the benefits of the increased investment flexibility that DFMs enjoy.

Indeed Gareth Johnson, head of managed investment services at Brewin Dolphin, says he increasingly sees advisers turning to DFMs in 2016 because they are confident the value they add is in holistic financial planning and not necessarily just for the investment management.

By using an expert in the field of investment management, Mr Johnson says the adviser can free up their time to work more closely with their clients or look to build further relationships.

In using a DFM, Mr Johnson says they get access to the many resources at the disposal of a DFM that are typically uneconomical to employ within their own business.

Mr Johnson says advisers are also reviewing the regulatory horizon and, when trying to produce robust and repeatable process, they may look to a DFM to assist.

Finally, he says using a DFM can mitigate the effect of surprises, such as a fund manager resigning.