In the world of investing, discretionary fund management (DFM) is often positioned as a sophisticated, hands-off solution for investors looking to delegate decision-making to experts.
In general terms, a discretionary fund manager has the authority to make investment choices on behalf of their clients, executing trades and adjusting portfolios without requiring prior approval.
While this approach is often marketed as a way to capitalise on professional expertise and rapid market responses, at Private Client Consultancy we wanted to answer the questions we often get asked:
In this article, we will explore the fundamentals of discretionary fund management, its pros and cons, and whether it’s the right fit for you.
Discretionary fund management is a style of portfolio management where an investment professional takes full control of decision-making.
Unlike advisory services, where clients must approve each trade or adjustment, discretionary management allows the portfolio manager to act swiftly in response to market conditions.
Essentially, DFM is a service where a professional investment manager makes decisions on your behalf. They take care of selecting investments, managing your portfolio, and making adjustments when needed - all aligned with your financial goals and risk profile.”
There are 4 main parts to DFM, yet each professional manager might have their own variation.
DFM services are commonly used by high-net-worth individuals, trusts, pension funds, and institutional investors.
They are often provided by private banks, wealth management firms like ours at Private Client Consultancy, and independent investment managers.
Discretionary fund management is subject to strict regulatory oversight to ensure transparency, investor protection, and ethical financial practices.
Regulatory bodies such as the UK’s Financial Conduct Authority (FCA), the U.S. Securities and Exchange Commission (SEC), and the European Securities and Markets Authority (ESMA) enforce compliance requirements.
DFMs employ a variety of strategies to achieve client investment goals.
The choice of strategy depends on factors such as risk tolerance, investment objectives, and market conditions.
By diversifying their approach, DFMs can help clients optimise their returns while managing risks effectively.
Discretionary fund management is often contrasted with non-discretionary (or advisory) portfolio management:
Discretionary Management: The fund manager has full authority over investment decisions.
Non-Discretionary Management: The investor retains control, with the manager providing recommendations that require approval.
If you, the investor, would like professional guidance but prefer to have the final say, non-discretionary management may be a better fit.
DFM is not for everyone, but it suits certain types of investors:
It’s especially valuable for expats and globally mobile investors & digital nomads, who want their wealth managed across borders without constantly staying on top of different markets and regulations.
However, if you prefer low-cost index investing or want to maintain full control over their portfolios may find other investment approaches more suitable.
Get in touch with us at Private Client Consultancy for complimentary discussion on this topic.
With the rise of low-cost passive investment options and automated portfolio management services, the role of DFMs is evolving.
Technology-driven platforms now offer algorithm-based investing at a fraction of the cost, challenging the traditional discretionary model.
However, at Private Client Consultancy we also believe that human advisors remain an invaluable asset, that can provide you with the personalised guidance, strategic decision-making, and emotional reassurance that automated systems just cannot replicate.
Additionally, regulatory changes in various jurisdictions, have increased transparency around fees, prompting many investors to rethink their reliance on DFMs.
We have look at what is discretionary fund management and we can say it offers a streamlined, expert-driven approach to investing, providing convenience, customisation, and professional oversight.
However, selecting the right DFM requires careful consideration of costs, investment objectives, and a certain risk tolerance.
If you are considering a discretionary fund manager or evaluating your current investment strategy, speaking to a financial adviser can help you make an informed decision.
Get in touch today to explore tailored investment solutions that align with your financial goals.
Disclaimer: Tax laws, rates, and reliefs are subject to change and may vary depending on individual circumstances and residency status. Any information provided on this website is based on our understanding of current regulations (or the date of when the content was published) and should not be considered personalised financial or tax advice. As tax obligations can differ across regions, countries and evolve over time, we strongly recommend seeking professional advice tailored to your specific situation before making any financial decisions.
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