The Future of Investment: The Advantages of Discretionary Investment Management for Modern Investors

Investment management has come a long way since the days of individual stock-picking and hands-on portfolio management. With the rise of technology and data, investment management has become more sophisticated, offering new options for investors to reach their financial goals. Discretionary investment management (DIM) is one of the most promising of these new options, offering a range of advantages over traditional investment approaches.

What is a discretionary investment management service?

A DIM service is a type of investment management where a professional investment manager makes investment decisions on behalf of the client. Unlike traditional investment management services, the investment manager has full discretion to make decisions without needing prior approval from the client. This means that the investment manager is responsible for selecting investments, allocating assets, and rebalancing portfolios, all with the goal of meeting the client’s investment objectives.

How does discretionary differ from non-discretionary investment management?

DIM is differentiated from non-DIM by the degree of control the investment manager has over the investment process. In non-discretionary investment management, the investment manager provides recommendations to the client, who then decides whether or not to follow through with those recommendations. In discretionary investment management, the investment manager has full discretion to make decisions and execute trades without needing prior approval from the client.

What does discretionary mean in investing?

In investing, discretionary means that the investment manager has the freedom to make investment decisions without needing prior approval from the client. This type of management is based on trust, as the client is entrusting the investment manager with the responsibility of making investment decisions on their behalf. In return, the investment manager is able to respond quickly to market changes and make investment decisions in real-time, which can help to improve the performance of the portfolio.

Are discretionary fund managers worth it?

Whether or not discretionary fund managers are worth it depends on investment outcomes. For those who are looking for a hands-off approach to investing and prefer to delegate the decision-making process to a professional, a DIM service can be a valuable option. Additionally, discretionary fund managers have the advantage of being able to respond quickly to market changes and make investment decisions in real-time, which can help to improve the performance of the portfolio.

Discretionary Investment Management vs Advisory

When it comes to DIM, there are two main approaches: discretionary and advisory. DIM is characterized by the investment manager having full discretion to make investment decisions without needing prior approval from the client. Advisory investment management, on the other hand, involves the investment manager providing recommendations to the client, who then decides whether or not to follow through with those recommendations.

Issues with the Proposal Acceptance Advisory Arrangement include the following:

Alignment with Model Portfolio is challenging when different accounts choose not to follow recommendations at different periods of time, leading to a wide variance of accounts not in sync with the intended allocation.
Performance Attribution gets difficult as track records are not at composite level and there is no prevention of cherry picking of accounts to display performance. Plus, if the account has messed up, the advisor can point out that (1) alignment had not been timely, or (2) client had agreed to the alignment and must take responsibility for outcomes as such.
Efficiency with management and alignment gets challenging with more and more accounts to service in the proposal acceptance arrangement model. This is attributable to having to obtain acceptance before buy/sell executions for each and every single account.

What if the client does not want to subscribe to the Model Portfolio, yet want a customized discretionary investment management? Yes it is available. See Tailored Investment Solutions in Blue Below.

Isaac Fang CFA offers Discretionary Portfolio Management Services

Discretionary portfolio management services offer a range of benefits over traditional investment approaches. Some of these benefits include:

Professional Investment Management: Discretionary portfolio management services are managed by professional investment managers who have the expertise and experience to make investment decisions on behalf of the client.
Tailored Investment Solutions: Discretionary portfolio management services are tailored to meet the specific needs and goals of each individual client. (Min: SGD250,000 for custom portfolio)
Access to Diversified Portfolios: Discretionary portfolio management services provide access to a diversified range of investments, which can help to reduce risk and improve the performance of the portfolio.
Real-time Investment Decisions: Discretionary portfolio management services allow investment managers to respond quickly to market changes and make investment decisions in real-time, which can help to improve the performance of the portfolio.