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Investing for US Expats - Discretionary Fund Management

“The most important thing is to invest. The second most important thing is to buy well.” - Naved Abdali

Financial markets can be extremely volatile, with shares, exchange rates, and commodity prices fluctuating dramatically based on just a story in the news.

As a result, managing your investments and keeping up with events that could impact them is time-consuming. Some investors turn to index trackers or mutual funds, however many discerning investors turn to a discretionary fund manager to take on the burden of constantly monitoring their portfolio and the many factors that could affect it, applying their experience and expertise to attain your goals.

Discretionary fund managers make investment decisions based on their client's wishes, often set out in an agreed Investment Policy Statement (IPS). An IPS is a detailed document that outlines an investors’ preferences, goals, and risk-return tolerance. Because preferences and tolerances are personal and can change over time, the document should be dynamic and adaptable.

Trusting someone with managing your investments is a big step, but the benefits can also be significant in terms of protecting and growing your portfolio.

In this article, you’ll learn about the following topics:

• What is Discretionary Fund Management?

• What are the benefits of Discretionary Fund Management

• Should you use a discretionary fund manager?


Investing for US Expats - Discretionary Fund Management

What is Discretionary Fund Management?


Discretionary investment management refers to an individual or team making asset buying and selling decisions at their discretion on your behalf. For example, a discretionary fund manager usually decides which specific securities to hold in a portfolio.

It is a form of investment management in which a wealth manager or financial advisor makes all purchases and sales for you. Their investment decisions, however, are based on a plan that you have agreed together with them.

Discretionary accounts are typically actively managed, with the manager regularly buying and selling stocks to maximize stock market gains. While some discretionary managers take a more passive approach, investing in funds for example, this approach is less common.

Discretionary fund managers often use a structured group approach. This means that instead of necessarily making individual client-based investment decisions, they select a few assets to invest in across all of their clients. How much they invest in each of those securities is determined by each individual client’s risk tolerance.

As long as it is consistent with the client's risk level and financial plans, discretionary fund managers can diversify a portfolio and into any type of investments including stocks, bonds, real estate, and financial derivatives.


What are the benefits of Discretionary Fund Management?


Discretionary fund management relieves expat investors of the responsibility of making day-to-day investment choices, which can be better made by an expert portfolio manager who is constantly monitoring company information and factors that can cause market fluctuations. Delegating investing to an experienced manager frees your time to focus on other things, with the knowledge that the portfolio is being monitored and handled by an expert in the field.

Because discretionary managers usually charge fees based on performance or portfolio value rather than based on transactions, discretionary fund management aligns both your and the investment manager's interests; that is, if the portfolio grows due to successful discretionary management, the advisor is compensated with higher fees. This reduces the advisor's desire to "churn" the account to earn more compensation compared to a transaction-based investment model.

In summary, benefits of discretionary fund management include:

1. Ease


As an investor, you don’t need do not need to waste time researching or worrying about the performance of your investments.

2. Incentivized to grow your portfolio


When investment managers are compensated based on performance, they strive to maximize growth for you.

3. Benefiting from professional advice


Investment managers are typically professionals with specialist knowledge and insights about financial markets and investing.

4. Scale economies


Investors effectively pool their capital and so gain access to economies of scale through lower trading costs and block trades carried out by the fund manager

5. Flexibility


Another benefit is that discretionary fund managers can adjust their investments without seeking permission from the investors every time, which should allow them to act quickly if they see a market opportunity.

6. Personalized service


Compared to investing in funds, you receive a more personalized service that includes high-quality financial planning and investment management designed to achieve your goals.

A discretionary fund manager is analogous to a surgeon in an operating room. Though the surgeon performs the surgical procedure, they are assisted by anesthetists, nurses, and other specialists. Similarly, most discretionary fund managers use researchers and an operations team to assist them, as well as having access to the most up-to-date information, reports, and analysis, just as a surgeon does to ensure a successful operation.

Should you use a discretionary fund manager?


While the decision of whether to use a discretionary fund manager will always be personal, it should be part of a discussion with your expat financial advisor. The most important consideration is whether doing so will better allow you to achieve your financial goals.

Many expats choose to invest part of their portfolio in funds, and part with a discretionary manager, to reduce the risk while also aiming to outperform the indices. This is called a core and satellite strategy.

Ultimately however, the more experience you have, the more likely you are to make profitable investment decisions. A good discretionary fund manager will likely have witnessed numerous economic cycles, business developments, and political and policy changes. This experience can have a material impact on your portfolio performance, as they bring their own expert knowledge aligned with access to the data and information to which they have access.


Alternatively, many expats consider a robo investor solution, such as DF Direct. Ultimately, the choice is personal.


Wrapping up


Discretionary investment is a form of investment management that removes you from day-to-day decision-making. Instead, a financial planner or other advisor manages your investments following a predetermined plan.

Discretionary fund management fees vary depending on with whom you collaborate and how you allocate your money, but you should assume on paying at least 1% of your portfolio value. You should however hope to benefit by more than this due to the benefit of their expertise.

While there are now more affordable investment options, such as robo-advisors, they don’t provide the same experience and ability to react to market and socio-political developments.

Before making decisions about investments that could significantly impact your portfolio performance and overall investment objectives, always discuss your ideas with your financial advisor to ensure that you understand all the variables, risks and possibilities.


If you have any questions, don't hesitate to contact us.


DUNHILL FINANCIAL, LLC IS A REGISTERED INVESTMENT ADVISER. INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.


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