Choosing a Discretionary Fund Manager
A client is looking to invest the majority of their SIPP via a Discretionary Fund Manager (DFM) but is unsure of how to choose the right DFM for their needs and investment strategy.
The Challenges
Maria has a SIPP with Curtis Banks, which is currently valued at around £200,000. She previously had most of her pension invested in a commercial property, however she has just sold this and the sales proceeds are now in the pension in cash.
Maria is 56, and intends on retiring in 7 years’ time, and wants to spend that time building up her business further so that she can pass this to her son when she retires. As such, she wants to take a hands off approach to her pension.
Maria speaks with her financial adviser Jamal to discuss what the next steps are in terms of implementing her strategy in her lead up to retirement.
The Actions
Maria and Jamal discuss the options available for Maria’s pension, and Jamal advises that a DFM may be the most appropriate option for Maria, noting that Maria does not want day to day responsibilities for her pension and investment planning.
Maria asks what a DFM is. Jamal explains that a DFM undertakes the purchase and sale of investments on behalf of Maria’s SIPP, and that they manage the investment portfolio. They operate within various stock exchanges and have extensive market knowledge. Jamal adds that DFMs can offer:
- Managed portfolios that are risk profiled
- Bespoke strategies for retirement income, tailored to client needs
- Access to a wide range of investment options including listed and unlisted shares, unit trusts and OEICs
Jamal agrees to look into a suitable DFM for Maria, to align with her investment strategy. As part of this process, Maria is keen to understand what processes/requirements Jamal will be considering when advising her of the most appropriate DFM. Jamal explains that he will look for a variety of criteria, including:
- Customer service and customer care levels
- The investment options on offer via the DFM- are they able to access the whole of the market?
- Responsiveness to changing client circumstances and market conditions
- What has the historic performance of the DFM been against the benchmarks that Jamal considers for Maria’s specific circumstances
- Effective and timely valuations
Jamal explains to Maria that all DFMs need to pass due diligence with Curtis Banks before any accounts can be opened, but that the existing list of investment firms available on Curtis Banks’ website have all successfully gone through this process already and those listed as partners report electronically directly to Curtis Banks.
Jamal recommends that Maria splits the funds that are placed with the DFM into some longer term investments, like listed shares and then keeps some short term investments that can be readily liquidated for cash flow requirements.
The Results
Jamal undertakes his own research and due diligence to identify the most appropriate DFM for Maria. He advises Maria on the DFM which he feels is most suitable, and advises her to place £150,000 with the DFM, of which 25% is kept in short term investments which can be accessed more readily if required.
Jamal checks the Curtis Banks website and notes that the DFM are already an existing investment partner with Curtis Banks so no additional due diligence is required for the firm to enable instructions to be provided.
He submits the instruction to Curtis Banks, who establish an account for the SIPP, and arrange for the transfer of funds to the DFM, for investment into a managed portfolio, fully tailored to Maria’s risk profile.
This information is based on our understanding of current legislation, including (but not limited to) FCA, PRA and HMRC regulation. It does not constitute any form of advice.