Benefits and Considerations of Discretionary Fund Management
As with all investment decisions, there are things that you as an investor must consider before deciding what is right for you. In this article, we explore the main benefits and key considerations of Discretionary Fund Management.
Benefits
Discretionary fund management offers several benefits to investors, making it an attractive option for those who prefer to delegate their investment decisions and portfolio management to professional experts.
Firstly, discretionary fund managers are usually highly skilled and experienced investment professionals who possess in-depth knowledge of financial markets, asset classes, and investment strategies. A DFM can use this knowledge to help diversify your portfolio, reducing investment risk and improving the potential for consistent returns over time.
Similarly, DFM’s often have access to sophisticated investment strategies, such as alternative investments, hedge funds, or private equities. As these strategies may be challenging for an individual investor with limited funds to access directly, utilising a DFM is a great way to put money into these less common investments.
Finally, managing an investment portfolio can be time-consuming, requiring ongoing research, analysis, and decision-making. By using a DFM, you no longer need to be actively involved in day-to-day investment decisions. This is particularly beneficial for people with a hectic lifestyle or those who lack the knowledge or desire to actively manage their portfolio on a regular basis.
Did you know?
As of April 2020, there are 1,255 firms authorised as discretionary fund managers in the UK.
Considerations
As with most investment strategies, the suitability of discretionary fund management is very much down to your own personal circumstances and financial goals. Using a DFM comes with its own considerations.
To start with, using a DFM can often come with higher fees compared to other investment options such as single fund investment or passive and tracker funds. These fees must be taken into consideration when deciding on the best strategy for you, and this is where your AMFA adviser can help you make an informed choice.
Furthermore, all investments into stocks and shares come with inherent market risks. While a DFM will aim to manage these risks and create a diversified portfolio, there is no guarantee against market downturns or losses, especially in the short term. A key aspect to think about is something known is your capacity for loss, that is, how much of your investment value you could afford to lose and its impact on your lifestyle.
Lastly, it is important to understand the impact of delegating the management of your investments to somebody else. As noted, DFMs have vast experience and knowledge around a broad range of investments. Conversely, there is no guarantee that this knowledge and experience will translate into investments that give a higher return, especially in times of high market volatility such as those experienced during the Covid-19 pandemic and subsequent economic recovery.
To conclude…
In summary, using a Discretionary Fund Management approach can be an excellent option for you if you are looking to hand over investment control to an industry professional who can make decisions on your behalf and act promptly in response to market fluctuations.
It is, however, essential for you to carefully assess your financial goals, risk tolerance, and preferences to ensure this is the right service for you. Every investor is different and thankfully, our team here at AMFA can help you make the right choice and achieve your financial goals.
