The Rise of DFM use in Financial Planning Practices

Independent Financial Advisers (IFAs) are navigating a complex and demanding landscape. The mounting regulatory burden, the challenge of efficiently managing portfolios, and the growing expectation for personalised client service can stretch resources thin.

The question many IFAs face is: how can they continue to provide high-quality advice without being weighed down by the increasing administrative workloads?

One potential solution is by using Discretionary Fund Managers (DFMs), but does outsourcing investment management mean losing client control?

Will clients still need an adviser if DFMs handle investments and send updates directly?

Navigating the Challenges IFAs Face

Regulatory compliance has become an increasingly time-consuming aspect of financial advising. With MiFID II, the Retail Distribution Review (RDR), and Consumer Duty all shaping the way IFAs operate, staying compliant is no longer good practice by a operational prerequisite.

Nonetheless, keeping up with new regulations, documenting suitability, and ensuring transparency takes up valuable time that could otherwise be spent engaging with clients.

On top of this, managing portfolios can be a relentless task. Monitoring market movements, researching investment opportunities, rebalancing portfolios, and ensuring risk levels align with client expectations require constant attention and smaller practices lack the ability to scale these operations given the size of their client pool.

While advisers may want to retain full control, the reality is that dedicating so much time to investment management can come at the cost of deeper client relationships and long-term financial planning.

Managing Client Expectations

Then there’s the question of client expectations. Investors today expect more than just good returns; they want tailored wholistic financial advice that covers everything from tax efficiency and estate planning to lifestyle changes and retirement strategies.

With this in mind, customised portfolio management becomes a time consuming practice, that distracts from other crucial aspects of maintaining client relationships.

Many advisers hesitate when considering DFMs. If a DFM is managing the investments and sending updates directly, does the adviser still play a meaningful role? Will clients start questioning why they need an adviser at all?

The reality is that DFMs handle the technical side of investment management, but clients still turn to advisers for broader financial guidance and the adviser remains the pivotal trusted partner in their advice journey.

For IFAs, DFMs can simply be a way to work smarter rather than harder. Instead of spending countless hours on investment research, compliance documentation, and portfolio rebalancing, advisers can focus on helping clients refine and achieve their financial goals.

Using DFMs is More Than Just Outsourcing Portfolio Management Work

With DFMs taking care of the heavy lifting on portfolio management, advisers no longer have to keep track of market fluctuations in real-time. This opens up more opportunities to spend quality time with clients, deepening relationships and growing their practice.

Furthermore, compliance becomes simpler when investment decisions are handled within a regulated framework, freeing advisers from the constant stress of ensuring every transaction meets the latest guidelines.

Running a fully bespoke investment service can also be costly, both in terms of direct expenses and time spent. DFMs often have the scale to provide diversified, risk-appropriate investments at a lower cost than an individual adviser could offer on their own.

Integrating DFMs Seamlessly with Financial Software

Using a DFM doesn’t necessarily mean losing oversight. With modern financial software, IFAs can integrate DFMs into their existing processes while maintaining full visibility over client investments. Platforms like Automwrite, Intelliflo, Xplan, and FE Analytics make it easier than ever to track performance, ensure compliance, and align investment strategies with client objectives.

Suitability reporting can be automated, reducing the need for tedious paperwork while ensuring all regulatory requirements are met. Real-time portfolio tracking allows advisers to remain informed without having to manually monitor every transaction. Risk profiling tools and automated rebalancing ensure that client portfolios remain aligned with their long-term financial goals without constant manual intervention.

Does This Mean Custom Portfolios Are Obsolete?

Not necessarily. Many investors still prefer bespoke portfolios managed directly by their adviser particularly clients within the high-net-worth and ultra-high-net-worth market segment. As a result, many advisers are opting for a hybrid strategy, using DFMs for the majority of their clients while maintaining a select number of bespoke portfolios on demand.

Rather than diminishing an adviser’s role, DFMs offer an opportunity to reimagine it. By streamlining investment management, IFAs can dedicate more time to financial planning, ensuring clients receive a truly personalised service.

Advisers who integrate DFMs effectively can spend more time focusing on their clients’ evolving needs. They remain the key point of contact, ensuring investments align with life goals, helping clients navigate financial challenges, and providing the human insight that DFMs cannot replace.

What is to come?

Financial advising is changing, and those who embrace smart solutions will be better positioned for the future.

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