Merriam-Webster defines the term discretionary as: “left to individual choice or judgement”. In the financial services world the terms discretionary management, discretionary fund management and discretionary investment management are widely used, yet are difficult to define as they are applied to a variety of investment services offered to a range of clients.
In most instances when the term ‘discretionary’ is used in financial services it is in reference to the fact that investment decisions are made at the portfolio manager’s discretion – meaning that buy and sell decisions are made on a client’s behalf. This discretionary management can take place on behalf of a variety of clients, from high net worth individuals, pension or umbrella funds to financial advisory clients.
What is a Discretionary Fund Manager?
The range of services Discretionary Fund Managers (DFMs) offer varies hugely – from simply providing investment research, to running model portfolios with a set return target, to offering a tailored service to clients with specific investment requirements. But in essence, a Discretionary Fund Manager delivers a professional service by providing investment expertise for clients.
Why would an adviser choose to work with a DFM?
It is important to note that not all DFMs are the same. DFMs can provide an array of services for advisers, ranging from performing fund and product research, supplying a buy list of funds and products, running a suite of model portfolios to partnering with an adviser to provide an all encompassing investment service. But regardless of the level of service an adviser requires – the premise of choosing to work with a DFM is the same, to save the advisers time, to reduce their investment and business risk, allowing more focus on their clients’ other needs.