discretionary investment management

This chapter is designed to offer a basic understanding of discretionary investment management and its benefits.

Speak to a financial adviser about whether using the services of a discretionary investment manager to manage or advise upon your portfolio of investments will be right for you.

When you use the services of a discretionary investment manager, you are giving authority to a professional investment manager to manage or advise upon your portfolio of investments. The discretionary investment manager can act on a discretionary or advisory basis. The investment manager can carry out transactions (such as buying, selling, and switching investments) in line with the investment objectives and parameters that you’ve agreed with them.

What does it mean?

The term ‘discretionary’ refers to the fact that investment decisions are made at the investment manager’s discretion, and the investment manager manages the portfolio on this basis, reporting to you on a regular basis in terms of transactions undertaken along with investment performance achieved.

The term ‘advisory’ in the context of a discretionary manager appointment, means that the investment manager manages the portfolio on your behalf and provides ongoing recommendations to buy or sell investments, but refers to you for a decision before acting on them.

How does it work?

An investment manager takes the time to understand your personal requirements, including your attitude to investment risk and objectives, and constructs a suitable portfolio in line with your needs.

You will have a direct relationship with this investment manager and their team throughout the lifetime of your investment. Your investment manager is accountable for monitoring the investment performance and the ongoing suitability of the investment portfolio they manage on your behalf.

Discretionary investment management is viewed as a traditional way of managing investments, generally with a dedicated individual investment manager or committee responsible for investment decisions. To create the most suitable diversified portfolio to manage risk and optimise growth or income opportunities for you, they will invest across a range of asset classes such as:

  • Equities
  • Fixed interest (government and corporate bonds)
  • Property
  • Alternative investments
  • Collective investment funds
  • Cash/cash equivalents (such as fixed-term deposits)

In addition to equities, bonds and a mixture of collective investment funds, discretionary investment managers may use alternative investments such as commodities (e.g. gold and silver), structured products, or hedge funds. These investments can offer significant diversification to a wider portfolio but are often difficult for retail clients to access.

About the underlying investments

Discretionary investment managers frequently offer detailed information on what the underlying investments are. For example, there might be 20 different shares, and 10 different bonds in the investment portfolio, and the regular investment reports provided by the investment manager will provide information about the investment performance of each individual holding, as well as the portfolio as a whole.

DIM, DAM, DFM – What is the difference?

  • DIM - discretionary investment management
  • DAM – discretionary asset management
  • DFM – discretionary fund management

The terms discretionary investment management, discretionary asset management, and discretionary fund management are often used interchangeably and are all forms of discretionary service. Sometimes, the term ‘discretionary fund manager’ is used for an investment manager who only deals in investment funds, whereas a discretionary asset manager or discretionary investment manager may manage equities and bonds, in addition to funds.

Why would I want a discretionary service?

People choose discretionary investment management for a number of reasons. For example, because:

  • They are not achieving their desired outcomes from their existing investments and investment approach
  • There is no suitable ready-made investment solution available for their needs
  • They don’t have enough time to manage their own investments
  • They’re not sure where to start to look for the right investment.

One of the main reasons for using a discretionary investment manager is the personal service they often provide. As a client, you can be as involved as you wish in the management of your investments. You may choose to be consulted on all investment decisions or you can choose to let the investment manager make all the decisions and have very little contact with them.

One of the main reasons for using a discretionary investment manager is the personal service they often provide.

You may want to have face-to-face meetings with the investment manager on a regular basis, or simply have the occasional telephone conversation to keep up-to-date. Just like building the investment portfolio, the way that the discretionary service is delivered can be tailored to suit you.

The benefits of using a discretionary investment manager

Discretionary investment management offers many benefits to clients.

  • It removes the burden of making investment decisions.
  • It removes the burden of the day-to-day management of your investment portfolio.
  • It helps to ensure your portfolio is aligned to your long term investment goals at all times.
  • It may provide access to investment opportunities and themes which might otherwise be unavailable to retail customers.

Using the services of a discretionary investment manager

You entrust your discretionary investment manager (DIM) to make investment decisions on your behalf, which investments to buy and sell and when

Your DIM uses their discretion to meet your specific requirements

The manager acts quickly to take advantage of investment opportunities

Your DIM acts in your best interests following your stated investment objectives and any individual requirements

They continually review

They are accountable

You have direct access to your investment manager