Q&A 

Outsourcing portfolio admin can be costly

Outsourcing portfolio admin can be costly

Q: What is the best way to outsource to a discretionary fund manager?

A: The advice process today is filled with many nuanced and complex financial planning requirements.

Dynamic financial markets coupled with an ever-evolving regulatory landscape require financial advisers to walk a fine line between client suitability and portfolio performance. Advisers need to demonstrate ongoing advice suitability as well as portfolio risk alignment.

A DFM service can aid advisers in easing this regulatory burden. Without a discretionary agreement in place, advisers may find timely portfolio management difficult to achieve, which can result in less than favourable portfolio outcomes.

DFM services are typically accessed through two avenues; either direct through a DFM or through a managed model portfolio service. Both offer many pros and cons for both the adviser and the client but, ultimately, suitability ranks supreme when finding the best fit for both parties.  

At the outset, it is imperative for the adviser to find a discretionary service designed to keep the adviser at the heart of the client relationship, allowing both parties to focus on what they do best – for the fund manager, managing investment portfolios and for the adviser, developing a holistic financial plan that meets client expectations.

It is important to think about the cost implications when considering a bespoke investment plan as offered through a direct DFM.

The fees associated with this type of service are typically much higher than that of an MMPS, and as such this option tends to be better suited to high net worth clients or clients with complex financial planning requirements.

The benefit of this approach for the adviser lies in the shift of regulatory and administrative burdens that now sit with the DFM, while the client benefits from active and timely investment management through a tailor-made portfolio that meets their specific needs.

For the majority of advisers, the option of an MMPS provides access to the experience and skillset of a DFM at a lower cost.

Equally, managed model portfolios ease the administrative burden for the adviser and ensure ongoing suitability for the client.

Selecting a risk-managed managed model portfolio brings advisers one big step closer to maintaining ongoing client suitability and consistently meeting their clients’ expectations of risk and return.

In both instances, client portfolios benefit from a well-diversified multi-asset investment solution that manages risk and suitability at a cost relative to the size of their investment.

A discretionary service eases the administrative burdens that advisers face, resulting in increased efficiencies throughout the advice process.

In turn, these benefits allow advisers to focus on a holistic advice service that adds value to not only their business but, more importantly, their clients.

Neil Stevens is joint chief executive of SimplyBiz Group