Discretionary investment management

Discretionary investment management is popular with many different types of investors.

For those without the time or inclination to be a self-directed investor, the discretionary route can represent a good way to get the most out of investing without having to dedicate a lot of time and thought to it. Equally, the client in question could be a trustee acting on behalf of a charity who is responsible for seeing that a certain investment mandate is fulfilled and who opts to outsource that to a professional institution.

How it works

You should not think of discretionary investment management as something which will require you to be entirely passive. This is not the case at all. Rather, if you enter a discretionary investment management relationship you will be delegating the execution of an agreed overall investment strategy to someone with the right investment skills and experience (along with the backing of a full research team). You will still be well-placed to see exactly what is being done with your money and how your wealth manager is performing against target.

Your investment strategy will have been carefully worked out through a collaborative process of discovering things like your long and mid-term objectives; your true attitude to risk and capacity for loss; how any existing investments might be optimised and so on. Once your wealth manager has a full picture of your financial circumstances and goals, they will then create a portfolio for you. The degree of customisation which this involves can vary significantly, however.

Degrees of discretionary

There are different types of discretionary wealth management, and the degree to which your portfolio is tailor-made can have a big impact on the costs involved. Portfolios which are 100% bespoke are costly to devise, monitor and trade on an individual basis and so they are usually the preserve of those investing very significant amounts. A popular alternative is the use of model portfolios. This is where you are assigned a portfolio which has been devised by the institution’s investment experts to suit a client with a similar profile to yours (they typically offer four or five variations). Many firms operate a kind of halfway house where individual advisers follow a house investment view in the main, but are afforded some latitude to make tactical investment calls on behalf of individual clients.

One of the main benefits of following model portfolios is that a great deal of thought and expertise will have gone into their construction. They are likely to have been rigorously tested to make sure they perform as expected across various market conditions. You are therefore less likely to encounter surprises as the model portfolio allocated to you will have been selected on the basis that it has appropriate risk, return and volatility characteristics.

Aside from the fact that model portfolios can offer really robust risk management, they are also a far more cost-effective option – for both client and institution. The advent of model portfolios has been highly instrumental in opening wealth management up to a greater number of clients than ever before. (Some of the wealth managers on the findaWEALTHMANAGER.COM panel will work with clients who have £50,000 to invest, for instance).

Discretionary investment management is where many clients end up, having gone through DIY and advisory services first. Equally, for some clients discretionary was always the only realistic option when they really considered how much time and effort they have to spare. You can go down the discretionary route and still retain a good deal of control and oversight over your investments; what you won’t have is the hassle and stress of monitoring and managing them every day.

If you haven’t considered using a wealth manager before – or if you haven’t reviewed your existing manager to check their competitiveness and suitability try our smart online tool. Or, if you would like to discuss your situation with our straight-talking team, please do get in touch here.

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