Haden (pictured) says it is important that investors who want to use a DFM should first see an IFA such as himself to work out their time horizon and
attitude to factors such as risk
– and that this is a view shared by the DFMs themselves. "What we are seeing is a lot of DFMs referring clients to us first to have the discussion about what their outlook and objectives are," Haden explained.
"We have had a few meetings with a national-based discretionary fund management company that has said it would prefer for us to make the decision of what the investor should be doing with their money first, as they will just put the investment straight into a risk-adjusted managed portfolio."
In a recent FE Trustnet article, Brooks MacDonald’s Jon Gumpel said that his company will only allow investors access to their managed portfolio service if they come through a professional adviser; however, investors can put money directly into the firm’s risk-rated funds.
"If an investor went straight to a DFM and said, ‘I have £100,000 and I want to invest it’, it would just be put into a portfolio without really thinking about ISAs, pensions and the implications of capital gains tax," Haden warned.
He adds that this is by no means a criticism of DFMs, as their job is to manage money and not to advise clients.
"It makes far more sense for investors to come through their IFA as it helps the DFM decide where to put their money."
"IFAs will consider ISAs, pensions and VCTs when deciding on asset allocation."
"This advice should have two parts; firstly we look at the structure of the client’s investments. Then when we have said, say, we are going to put £50,000 in an ISA and £50,000 in a pension, it is the major decision of where we invest the money."
"If the direct investment went to a DFM, there isn’t that asset allocation flexibility, which I think is key for investors."
Haden says that one type of investor who would benefit from going directly to a DFM is one who holds a collection of individual stocks.
"Where DFMs are very useful is if an investor has exposure to direct equities, say a number of holdings in the FTSE 100, then I would advise a client to go through the discretionary side because it is not in an IFA’s remit to cover that area of the market."
"I think the initial consultation should always be with your IFA, as then you can look at the wider picture."
Investors who want to invest directly in managed portfolios can gain access through a number of fund platforms, such as AXA Elevate and Sippcentre.
A spokesperson for Cofunds said that although managed portfolios are not currently accessible via the platform, it is in the pipeline for autumn 2013 because there has been increased interest in this area of the market.
However, Haden warns investors to be mindful of managed portfolios that are available through fund platforms.
"I think it depends on whether or not you are getting a fund manager who manages his or her portfolio well and is able to keep costs down. This can be a good approach," he said.
"However, I disagree with the idea because I prefer to set my clients’ asset allocation personally, because the majority of managed funds don’t allow clients that flexibility when planning their investments."