Discretionary Management  

Key questions to ask those running client investments

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Taking care of outsourced clients

Key questions to ask those running client investments

Advisers are increasingly handing over the investment decision-making part of their role to discretionary fund managers.

The Financial Conduct Authority has been considering whether advisers have a duty of care to their clients.

 So it may be unsurprising that advisers need to exercise substantial due diligence on the DFM they choose to manage their clients’ investments.

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So what are the key questions advisers should ask those running their clients’ investments?

Several advisers said cost was the biggest question after Mifid II came into force at the beginning of last year. 

Mifid II 

Alex Shaw, director of Progeny Wealth, says: “What are the running costs likely to be for clients? This has always been a key consideration, but is even more relevant now given the Mifid II cost disclosure requirements.”

Mifid II came into force in January 2018 to increase transparency, particularly when it comes to investment fees and charges levied by advisers.

But it also includes requirements on making sure clients are advised to invest in appropriate products.

Danny Knight, head of UK group distribution at Quilter Investors, confirms: “Mifid II fundamentally changes the requirements relating to suitability – the need for advisers to provide suitability reports to clients pre-investment is key. Suitability, ultimately, needs to be at the centre of the entire investment process”

He adds: “From a manufacturer’s perspective, Mifid II has clear ‘product governance’ requirements, defining the characteristics and objectives of the identified target market – this is the key question that I would expect from advisers.”


Joe Roxborough, chartered financial planner at Ascot Lloyd, identifies timing of investments as a crucial area advisers should enquire about.

“How does the manager deal with an unusual situation for a client? For instance, if an investor needs to cash in their investment rapidly, how quickly can the money be returned to them?” he asks. 

Paul Bullough, chartered financial planner at Quilter Private Client Advisers, highlights a few separate questions related to timing. 

He asks: “How frequently are the portfolio holdings traded? Rebalancing regularly accounts for movements in the market – without regular attention the portfolio is likely to increase in risk over time and could exceed acceptable levels. Is the manager genuinely trying to add value and how do they demonstrate this?”

Risk and return

Advisers might want to ask a number of questions related to the risk profile of the portfolios run by DFMs. 

Mr Bullough mentions the following as useful lines of questioning: 

  • Is there a clear risk benchmark that directly relates to the client's risk profile?
  • Is the portfolio appropriately forward-looking and in line with expected future requirements?
  • Is the portfolio designed for financial planning with risk budgets and clear communication?
  • How diverse is the portfolio and does it cover at least four asset classes?

Mr Shaw asks: “What risk mitigation measures do they have?

“We would need to see that their asset allocation was structured accurately – not just done on gut instinct – and what ongoing monitoring measures are being taken regarding rebalancing and performance management.”

Mr Knight says a slowdown in the global economy will generate additional concern among advisers outsourcing their clients’ investments. 

“It has been a relatively easy time for advisers to generate returns for clients and a period where conversations have been easy and without too many challenges,” he explains. “Going forward with global growth slowing, being later cycle and expected returns from asset classes being lower, managing client expectations both from a return and risk perspective are now even more important than ever.”