When partnering up with an independent financial adviser it’s important to establish how your investments will be managed. Advice firms operate two modes of investment management: advisory, and discretionary fund management (DFM). Some advice firms, which have achieved the necessary permissions stipulated by the Financial Conduct Authority, may operate their own in-house DFM services.
DFM provides a number of advantages in comparison to an advisory model, including more timely placement of buy and sell orders (financial markets can change rapidly), and a reduced time burden for clients, with no need to manage and oversee investments.
Advisory vs DFM
An advisory service sees your financial adviser make recommendations based on your specific needs and circumstances, but the client maintains full control of the investments, and remains the ultimate decision-maker. A DFM service sees the advice firm provide similar recommendations, but investment decisions are made on your behalf.
Advice firms with DFM permissions can implement investment changes – in line with the pre-defined risk profile and investment strategy – without consulting the client first (with any actions taken then reported to the client after completion).
How does an in-house DFM model benefit clients?
The ability to make changes to client portfolios without prior approval allows trades to be executed promptly and efficiently. This provides a clear benefit amid the context of fluctuating – and, at times, fast-changing – investment markets.
An in-house DFM service provides a number of other advantages in comparison to an advisory service model, including more frequent monitoring of investments, integrated financial planning and investment advice, and less time involved managing and overseeing investments for the client. Under some DFM models, cost savings can be achieved through pooling investments across clients who have the same holdings.
Typical in-house DFM services
In-house discretionary fund management services can include the following:
- Bed and ISA: Selling units in a general investment account and repurchasing them within a tax-efficient ISA.
- Capital gains ‘harvesting’: Utilising clients’ capital gains tax Annual Exempt Amounts in each tax year to avoid letting investment gains run away.
- Portfolio rebalancing: Rebalancing to ensure portfolios remain true to the agreed asset allocation and risk profile.
- ISA contribution reminders: Reminder service for clients who have ISA allowances remaining at the end of each tax year.
- Efficient trading: In-house trading teams can process client dealing requests throughout the day, ensuring client instructions are fulfilled in a timely and efficient manner.
The total cost – typically around 1.55% – of Lumin’s ongoing services is significantly lower than the UK average. The total includes Lumin’s 0.75% annual fee, which encompasses both DFM and financial advice, platform charges, and underlying product costs. Call 03300 564 446 or get in touch via our contact form to learn more.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
