What are the benefits of outsourcing your investment process to a DFM?

Traditionally, advisers may retain control of investing their clients’ money, either by researching and selecting funds, or in the case of larger firms, holding discretionary permissions to build and manage model portfolios themselves.

However, while some firms have the expertise and resources to handle this in-house, it might not be best for all to take on the entire investment process themselves. And with the range of solutions now available, advisers should consider whether partnering with a discretionary fund manager (DFM) could help them provide a better service for their clients.

Of course, every firm and client is different, and what works for one may not work for another. Giving an investment partner the authority to execute transactions on your client’s behalf without getting permission for every trade through you may not be something all advisers are comfortable with.

However, it’s worth considering a few key ways partnering with a DFM could strengthen the service you offer to your clients, as well as the ways it puts your business in a position to thrive.

How can using a DFM help financial advisers keep compliant with regulation?

One crucial aspect to investing clients’ money properly is staying complaint with incoming regulation. New regulation is regularly introduced to ensure the best client outcomes and it could expose your business to significant risks if you don’t adapt quickly or effectively enough.

Even if you can, it takes time and can be a headache to do so. A DFM has the resources, and more importantly, the focus, to make sure the investment process meets key regulation. This allows you to focus on other areas of your business and continue to deliver a great service to your clients.

For example, Consumer Duty prompted upheaval as advisers re-examined their businesses top to bottom to ensure they met the regulation. For many, this prompted questions about their investment advice process such as; how could one investment proposition or portfolio strategy work for all your different clients?

A DFM has the time, resources, expertise and scale to adapt to, and stay compliant with regulation, keeping your business protected and secure for the future.

How can partnering with a DFM strengthen your investment offering?

As a financial adviser, your understanding of your clients’ financial situations and goals is crucial to the advice process. Partnering with a DFM brings an investment specialist into your process. Having this support can provide the investment expertise to unlock better outcomes for your clients.

A DFM’s focus on investment means they spend time you probably don’t have determining ideal asset allocation, researching preferred funds and building and optimising multiple portfolios to suit specific client needs, and the ongoing monitoring and rebalancing of your clients’ investments.

For example, FE Investments’ research team conducts over 4,000 hours of fund research every year. Without this, it would take a sophisticated and resource heavy in-house process for you to be confident your clients are getting the best possible investment service.

Giving advisers more time

One key thing partnering with a DFM to deliver your investment process can bring you is time to focus on other aspects of your service. When a partner takes on the parts of the process listed above - the fund research, portfolio construction, risk mapping, rebalancing, etc. - this can free up your resources to focus on the parts of your service that really differentiate your business.

This includes building and maintaining strong relationships with clients and understanding their financial goals to deliver first class financial planning.

Supporting your client relationships

Different solutions work best for different firms, but an agent as client arrangement with your DFM allows you retain full control of the provision of services to your clients. This puts your relationships with your client to the fore - positioning you both on the same side of the table.

From this position, you can focus on ensuring each gets the support they need, as the DFM concentrates on investing and adding value through you.

A good DFM achieves this by providing a comprehensive solution that provides the support and documentation you need such as client-friendly reporting and risk mapping.

This helps you to communicate effectively and helps your clients understand their investment, supporting two of the four key outcomes of Consumer Duty. Plus, generally, well informed clients are happy clients.

How can a DFM help you grow your business?

If your clients have a better investment experience, you’re likely to grow your business organically through word of mouth, be it among peer groups or inter-generationally. On top of this, you can use some of your freed-up time to work on your business rather than working in it.

For example, you could prepare to scale by adopting new tech solutions and improving business efficiencies, run marketing campaigns to attract new clients, or develop new business strategies to target different client segments with the wider range of portfolios that you could offer with the support of a DFM.

And working with a DFM will help you increase the maximum number of clients you can serve. By saving time on fund research, portfolio construction, and rebalancing, you can increase your operational capacity and meet demand, growing your business and helping to close the advice gap in the process.

As you can see, there are some powerful ways in which partnering with a DFM can help your business. Yet, each financial adviser will have different priorities and different pain points – what works for one adviser and one firm may not work for another.

It’s important to consider carefully what approach will help you deliver better outcomes for your clients and allow your business succeed. However, in the key ways listed above, it may be worthwhile to partner with a DFM and smooth out some of your pain points to help power your investment advice process.

What should a Model Portfolio Service offer Financial Advisers?

If you think that partnering with a DFM could be the right move for your business, but you’re not sure where to start when it comes to finding the right provider, read our blog highlighting six things to look for when choosing a model portfolio service.

Important information

This is a marketing communication, intended for financial advisers only. Not for use by retail investors. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. The value of investments and the income from them may go down as well as up and you may not get back the amount originally invested.