Discretionary Management  

Key questions to ask those running client investments

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Taking care of outsourced clients

He adds: “In the decade since the financial crisis, returns have been easy to come by and clients have forgotten what volatility feels like and have also become complacent, with high expectations for returns.

Mr Knight cites recent Schroders research that predicted an average annual return of 13.2 per cent a year. 

But 2018 proved to be a tumultuous year for a number of assets, such as gold, as well as a number of benchmark indices, such as the US-based Nasdaq and S&P 500.

Additionally, the Schroders Global Investor 2018 study predicts annual returns of 9.9 per cent for investors over the next five years. 

This forecast is lower than Schroders predicted in 2017, which was 11.8 per cent.

Competitive advantage 

Advisers are also keen to know what makes DFMs unique in their offerings and how they differ from their competitors.

Mr Roxborough notes: “When comparing two very similar propositions, I like to ask what separates the manager from their competition.”   

He adds: “All managers can tell you about the size of their research team, awards gathered and diligence process – but I want to know what makes their offering different from anyone else.”

Mr Shaw asks: “How is their solution better than a well-diversified portfolio of low cost, systematically managed funds such as index funds?”

Jamie Farquhar, director of business development at Square Mile Investment Consulting and Research, lists a number of factors that advisers need to be wary of when choosing DFMs; namely, the level of independence attached to the company, the governance and oversight process, the reporting process, results construction process, and the company’s headcount.

“If a company can’t provide all this information, you should not be doing business with them,” he warns. 

Getting the relationship right

It is clear that advisers can ask a range of questions to DFMs and outsourced solutions providers to ensure they make the right decision for their clients. 

But how do advisers strike the optimal relationship with those running their clients’ investments?

Mr Shaw notes: “We would need a clear, long-term and readily available contact at the DFM that both the adviser and the client can speak with. We would not be able to hold a relationship with a faceless organisation.” 

Mr Bullough says: “It is important to respect the differing roles both the adviser and the DFM play in managing a client’s wealth.”