By Simon Bottle, Jun 17 2014 08:37AM
The simple fact is that these days it’s incredibly tough for an adviser to cover all the bases. Advisers are expected to give top notch guidance on mortgages, tax, pensions, insurance, succession planning and investments. The list is virtually endless. Add on the stresses, strains and challenges of being an unsalaried entrepreneur and the job has always been among the toughest out there.
Managing somebody’s financial security is second only in terms of responsibility to managing their health. For the client a financial adviser is like their family doctor or GP, a trusted all-round adviser. The GP will refer to a specialist, while still managing the relationship. In the same way, for a financial adviser, a DFM is an expert specialist referred to for portfolio construction and management. They are in the advisers’ corner providing the expertise to build and maintain successful client portfolios and giving protection from all the pitfalls of taking that responsibility alone.
The financial adviser still entirely owns the relationship with their client and is responsible for advice related to the client's attitude to risk, investment goals and timelines, tax planning requirements etc. The DFM simply dovetails into the existing arrangement by taking responsibility for selecting and managing the investments in an investor’s portfolio, based on the objectives agreed between the financial adviser and the investor.
DFM client risk profiling ensures the investor’s money is invested in a portfolio suited to their circumstances. This takes into account stuff like return expectations, time horizon and income needs, and then this is then signed by the client and ensures that the DFM, the adviser and the investor are all speaking the same language. If and when the investor and the financial adviser feel that the client’s investment profile has changed, we can easily update the investment portfolio.
Working with a DFM brings a subtle but important shift in the client/adviser relationship. The adviser and the client are on the same side of the table, they're working together to achieve goals, instead of the adviser defending their investment decisions. The DFM is on the hook for the end result.
Engaging a DFM allows the adviser to get back to their core proposition, improve the service to clients in terms of time available to manage relationships, investment outcomes and reporting. It de-risks financial and regulatory liabilities by mitigating the ever increasing business hazards for advisers of fund selection. At the same time engaging with a DFM can provide a revenue generating opportunity that due to its scalability can be used as a springboard for business growth more easily than the status quo arrangement for investments in place.
For some advisers, the use of the unitised multi strategy multi-asset funds is a stepping stone to DFM and a chance to work closely with an inverestment manag to experience the quality of their offering before outsourcing the investment management of part or all of clients’ portfolios with all the regulatory and administrative benefits that brings. For other advisory firms who plan to retain the portfolio management function, the funds can form a solidly dependable core holding in a portfolio around which to build other investments.