Elevating your investment strategy: How a discretionary fund manager adds value

Following the Retail Distribution Review, the role of a financial adviser has been moving towards one of holistic financial planning, enabling clients to fulfil their dreams and aspirations through a plan that considers every facet of their life. Advisers are often the first port of call during difficult times, and it is this more human side of financial advice, as opposed to investment decision-making, that clients value the most.

Partnering with a discretionary fund manager enables financial advisers to give their clients the in-depth financial planning advice they desire. This has become even more imperative with the full implementation of the Consumer Duty rules on 31 July 2024, which require client communications to be clear and easily understood, products and services to provide fair value and be suitable for the consumer’s needs and goals, and consumers to be adequately supported.

With solutions ranging from model portfolios and multi-asset funds through to bespoke discretionary fund management, there is more choice than ever when advisers are deciding which is the most suitable approach for their clients.

Why partnering is growing in popularity

Building and managing a portfolio of investments takes precious time away from talking to clients, guiding them through tough times, and deepening the financial planning journey. Share prices, exchange rates, bond yields and commodity prices can fluctuate dramatically, and keeping up with market movements is complex and time-consuming.

The backdrop of loose monetary policy and the expectation of lower interest rates has made this even more challenging. Whereas in the past it was relatively simple to construct a diversified multi-asset solution, these days asset classes have become closely correlated to one another, making it harder to identify assets that will perform differently in a range of market conditions.

As more of advisers’ time and resources are allocated to meeting Consumer Duty requirements, many are choosing to outsource investment decisions to a DFM. However, it is just one example of how the more complex regulatory environment that advisers are operating in has enhanced the case for outsourcing investment decision to a DFM.

By partnering with a DFM, advisers gain access to a team of experts who have in-depth knowledge of each asset class, experience in identifying uncorrelated positions, building and managing a portfolio of investments, and the time and know-how to monitor and adjust positions based on market movements. This leaves advisers time to concentrate on giving the best advice, while the DFM concentrates on delivering performance.

Investing in a post-PROD world

Following the introduction of the Product Intervention and Product Governance Sourcebook, or PROD, advisers are encouraged to segment their client base and ensure each segment is being given the most appropriate investment solution. Historically, clients were segmented according to assets but following PROD advisers are segmenting clients at a more granular level, taking into consideration their life stage, tax position and sustainability preferences, among others. Multi-asset solutions can help here because they have defined target markets and there is a variety of options to help advisers meet different clients’ needs.

Two common options are multi-asset funds and model portfolios. An important distinction to be aware of is the way these solutions are taxed, with some suggesting that one is better than the other – however it really comes down to client circumstance and objective. 

Within an ISA or pension environment, there is no capital gains tax (CGT) due when the portfolios are rebalanced within a managed portfolio service (MPS). However, if they are invested in a General Investment Account within that same MPS, this could potentially create an unintentional CGT charge, as the portfolio is rebalanced without specific understanding of the client circumstances. 

With a multi-asset fund, CGT would not usually arise until the fund is sold further down the road – therefore, an element of control remains in the hands of the adviser and client. There may be occasions where both MPS and multi-asset funds are suitable for the same client, but under different tax wrappers.

The right solution for one client won’t necessarily be the right solution for another, so having these different options ensures a variety of differing client needs can be met.

Another distinction is that model portfolios enable clients to see all the underlying investments, whereas when a multi-asset fund is held this may be less clear. From an adviser’s perspective, they could find that platforms offer more multi-asset funds than model portfolios because of investment holding restrictions on the latter.

As well as traditional model portfolios and multi-asset funds, there are also sustainable multi-asset solutions, which help advisers meet the needs of ethically minded clients. And for those with more complex requirements, a bespoke DFM service that is tailored to clients’ unique priorities and goals often proves especially valuable.

Two heads are better than one

There is a growing recognition that when it comes to financial planning and investment management, two heads are better than one.

By partnering with us, your clients benefit from increased time with their adviser, enabling them to navigate major life events and feel confident about their financial future. All the while safe in the knowledge that their investments are being carefully managed by our team of in-house experts, who are devoted to monitoring and reacting to market movements and delivering outcomes aligned to their plans.

We’ll give you back precious time to focus on what really matters – your clients.

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The value of investments can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Investment values may increase or decrease as a result of currency fluctuations. Information is provided only as an example and is not a recommendation to pursue a particular strategy. RBC Brewin Dolphin is the sponsor, investment manager and distributor to certain funds. RBCBD applies robust conflict management practices and disclosures to ensure these funds and relevant services are appropriate to meet client needs. RBC Brewin Dolphin and its employees do not receive additional remuneration or non-monetary benefits when a client invests in these funds or investment solutions.