Discretionary Management  

The technology needed to run a DIM

  • Describe the use of apps by discretionary investment managers
  • Identify some of the reporting rules required by the regulator
  • Explain the 10 per cent rule
CPD
Approx.30min
The technology needed to run a DIM
 Stefan Wermuth/Bloomberg

The service provided by a Discretionary Investment Manager is by its very nature more complex given the additional regulatory responsibilities.

Because of the complexities involved, a DIM firm will need to ensure its systems and controls are able to deal with, and support, its service proposition; this is where technology comes into play.

The problem for many DIM firms is how to go about selecting the right technology solution to implement.

This article will outline the tools a discretionary manager can employ to ensure the efficient implementation of a compliant and profitable discretionary service. 

A typical discretionary service advice process usually follows the following outline:

The implementation of the correct software solution within this process can aid the speed with which advice can be provided, the quality of the advice and the effective risk management of a client’s portfolio, ultimately resulting in the firm meeting suitability, regulation and client expectations.

When considering the correct software to implement, it is important to consider each step of the centralised investment process. 

Identify investment objectives: DIMs must understand their clients’ investment goals and objectives.

CRM software has historically been used to achieve this, however, more discretionary firms are starting to implement ‘gamified’ apps that encourage clients to supply information themselves via the app, thus cutting down the amount of work and time spent by the discretionary manager.

The ‘gamified’ element also incorporates a point-based system whereby clients are awarded points as they move towards a goal by providing information.

This functionality can also be tied into social media and as such could link into a firm’s marketing strategy.

Furthermore, it could be argued that this tool supports the younger generation’s mindset, and thus ties into the concept of intergenerational advice as it relates to the discretionary proposition. 

Gather information: Policyholders are inundated with paper statements, but there is a growing move towards virtual statements - a big leap in efficiencies sped up by the use of API technology.

API stands for Application Programming Interface and allows two pieces of software to interact in a much easier way than by integrating them.

For example, API allows for risk management software to interrogate the database of a CRM system and pull through policy information, which in itself saves hours in re-keying information. 

Identify client and investment risk: An important cornerstone within the discretionary advice process, and one upon which the regulator has placed a lot of emphasis, is the Centralised Investment Proposition (CIP) and, accordingly, Centralised Retirement Proposition (CRP). Risk management sits at the heart of CIP and CRP and they have evolved alongside software.

The responsibility lies with the discretionary firm to manage risk effectively by utilising software as a tool to agree the risk the client is willing and able to take. There are various software solutions in the market which allow for this process to be recorded in detail, and implemented effectively.