Discretionary Fund Management | A Guide For Expats
If you’re an expat living abroad, or simply interested in having your investments professionally managed, you may have had Discretionary Fund Management (DFM) recommended to you.
This type of investment management service is designed to help you grow and protect your wealth, but whether it’s the right option for you will depend on your financial goals and preferences.
Our guide will cover the key elements of DFM to help you decide if it’s the right choice for your investment needs.
What Is Discretionary Fund Management?
Discretionary Fund Management is a service where an investment expert manages your investments on your behalf. Rather than consulting with you before every decision, a DFM will make the calls on buying, selling, and re-balancing assets within your portfolio based on your strategy and risk tolerance.
This autonomy allows the DFM to react quickly to market fluctuations - capitalising on opportunities or avoiding risks without waiting for your approval.
Your DFM will keep you updated on your portfolio’s performance and any significant market events that may impact your investments. Depending on the firm, a DFM can be an individual professional or a committee which shares responsibility for your investment portfolio.
Advantages of Discretionary Fund Management
There are many reasons why investors may choose to work with a DFM, including:
Timely Decision Making
Since your fund manager won’t need to wait for your approval on every decision, they can act quickly on market insights, adjusting your portfolio as needed to stay aligned with your goals.
Customisation
A DFM will create a portfolio specifically suited to your risk tolerance, financial goals, and preferences, offering a tailored experience.
Expertise
With years of experience, DFMs are specialists skilled in managing investments, saving you time and potentially achieving better financial results.
Visibility
DFMs can provide more in-depth reporting, showing exactly which assets you hold, unlike other funds or ETF portfolios, which may only give generalised reports.
Efficiency
Discretionary Fund Management is suited to individuals who don’t have time to monitor markets regularly and want a professionally managed portfolio.
Disadvantages Of Discretionary Fund Management
Despite the potential benefits of DFM, there are some potential drawbacks to consider:
Additional Cost
DFMs charge higher fees than other investment services, and in the international market, hidden costs and commissions may apply.
Reliance On The Manager
Ultimately, the success of your investment portfolio will depend on the manager's skill, so there is always a risk they may under-perform and not meet your benchmarks or expectations.
Lack Of Control
Some investors may not feel comfortable with relinquishing control to a DFM, who will have authority to make decisions on your behalf.
Regulatory Concerns
In the UK, DFMs must disclose their charges, but if you are investing in the international market, you will not be protected by UK regulations. This could open you up to a lack of transparency and potentially hidden commissions and charges.
Why Have I Been Recommended A DFM By My Adviser?
If you’re an expat, a financial adviser may recommend a DFM for several reasons. DFMs specialised in international investments often understand the tax implications of managing assets across multiple jurisdictions, which can be particularly valuable for expats.
DFMs are experienced professionals with in-depth market knowledge. Your adviser may believe that leveraging their expertise can help achieve better returns, especially if your portfolio is complex or requires specialized strategies.
If your investments require regular monitoring and timely adjustments to stay aligned with your financial goals, a DFM can be beneficial. They can react quickly to market changes, optimize asset allocation, and adjust risk exposure as needed.
When Is A Discretionary Fund Manager Right for Me?
While DFMs offer several advantages, they charge far higher fees than passive investment strategies like index funds or ETFs. It's important to weigh the potential benefits against the costs.
This is exasperated when a DFM is used on an investment platform or within an investment bond.
If your portfolio is significant and complex, professional management and potentially superior returns may justify the added cost. However, if you're investing for the long term and your main objective is capital growth, a DFM might not be the best fit.
DFMs can be particularly beneficial for:
International Retirees
Individuals relying on investment income in retirement may benefit from professional oversight to help grow or preserve their savings over time.
High-Net-Worth Individuals
With large and complex portfolios, high-net-worth individuals may find that a DFM saves them significant time and effort while optimising their investment performance.
Cross-Border Financial Advice
Investing as an expat can be challenging, and it's essential to work with experts you can trust.
At The Wealth Genesis is dedicated to helping expats manage and grow their wealth. Our team provides transparent, bespoke solutions, with no hidden fees or commissions.
We can help you create a tailored investment strategy to fit your unique needs and goals. To learn more, book a free discovery call today using the diary below.
