A Discretionary Investment Manager: Why it might be the solution to your financial health

Written by: David Reynolds, Senior Partner and Head of Investment at Select Investors

As individuals we may not be the best people to make decisions on our investments. Humans are too emotional, particularly when it comes to fear and greed.

This may be something you have experienced as an investor, and if you have never invested then listen up, here’s your head start.

A discretionary fund manager (DFM) will not only remove the bias of our emotions but can add value to our portfolios through other factors. A DFM is where the decisions are made by the manager without having to consult the client.

I recently interviewed Tim Cockerill, Investment Director and Head of Responsible and Values Based Investment at Rowan Dartington (Part of St. James’s Place Plc) with regards to Discretionary Management. This interview can be viewed here.

Some of the most salient points are as follows:

Behavioural Finance

Humans can often be their own worst enemy. Everybody knows the phrase, ‘Buy Low, Sell High’, however the reality is that emotions, particularly as they reach fever pitch on the way to the top of the markets and very near to the bottom can take over from rational thought. The temptation can be to respond to the emotions to “protect yourself from further loss” as falling markets scare us or to “not miss out on more gains” as rising markets excite us. More often than not these emotions cause us to make the wrong decisions on when to buy or to sell out of investments. Additionally, in the digital world we live in, instant access to hyped up articles of boom and bust can lead to external influence depending on what we have read. This all combines to cloud our ability to be rational. More individuals ‘Buy High and Sell Low’ because of this. This is called behavioural finance.

There are ways to work with your adviser and manage those emotions or alternatively, the surest thing you can do is outsource all decisions to a DFM who will act rationally, even when we don’t.

Is your existing adviser actually managing your portfolio?

Often after having established an investment, whether from a banking relationship or a previous financial adviser, the portfolio isn’t tended to or can become somewhat neglected. Unfortunately, most financial advisers and banking Relationship Managers are not qualified in portfolio construction. This means that sometimes they build unbalanced allocation models, follow funds by their past performance or in the worst case, select by the fees they receive. What can even happen after that is that there is no altering of portfolios over time. We don’t need to trade portfolios regularly, but we do need to monitor and adjust.

There are advisory practices that have great investment teams with portfolio construction advice, from experience, ours is one such business. However, a DFM acts as the professional portfolio manager, they can work alongside a financial planner, and you will have experts in each area. The same way you would use an accountant to do your tax return or a lawyer for legal advice.

Speed

Ongoing portfolio monitoring and adjustment often isn’t time sensitive; it can simply be adjusting the weight of holdings or moving one allocation to another as economic factors change or indeed manager assessment suggests funds would be better invested elsewhere. However, sometimes these changes are more urgent, particularly if the portfolio manager wishes to take a more tactical position within a portfolio. If you are a busy individual, like most people in Singapore, and maybe couple that with plenty of travel for work or pleasure, making these changes isn’t always easy and quick. A DFM can make these decisions and action them on your behalf, so it doesn’t matter if you’re uncontactable or if your adviser is on annual leave.

Professional Management

  • Asset allocation – Building sensibly allocated portfolios in the risk profile of the client
  • Research – Macro research for top-down asset allocation
  • Selection – Researching the most appropriate fund to invest in for the specific allocation required
  • Monitoring – Ongoing portfolio asset allocation monitoring as well as manager monitoring

Restricted Investors

Some individuals are employed in a role where investing your own personal money is carefully restricted or controlled, which means that it can be difficult and painful building a direct portfolio or even an advisory one.  In this scenario a DFM is typically an ideal solution that satisfies the compliance department restrictions for clients.

In Summary:

A Discretionary Fund Manager can be a great way to fully remove yourself from the portfolio management, leaving it in the hands of a professional that won’t make irrational decisions, even if you want them to.  A DFM can operate faster and in a timelier manner and leave you in peace to spend your time on the things you want.

If you would like to explore the options in more details, please get in touch: david.reynolds@sjpp.asia.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. Members of the St. James’s Place Partnership in Singapore represent St. James’s Place (Singapore) Private Limited, which is part of the St. James’s Place Wealth Management Group, and it is regulated by the Monetary Authority of Singapore and is a member of the Investment Management Association of Singapore and Association of Financial Advisers (Singapore).

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