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Discretionary Fund Management – Is it right for your client?

Sue Whitbread talks to Simon Cooper, Business Development Director and Steven Rooke, Portfolio Director of Cazenove Capital about discretionary management and why it is all about providing advisers with what they – and their clients – want


SW: Simon, how can you help advisers who are looking to outsource the portfolio management function for their clients?

SC: As an adviser, when you are considering the outsourcing of portfolio management, in some cases a model portfolio service can be just what is needed. In other cases, a bespoke service is more appropriate. Our job is to ensure that whatever the client’s requirements, advisers can find the right solution with us. We offer both of these approaches within a robust framework that really does utilise all the strengths of Schroders and Cazenove Capital.

SW: In your experience, why do advisers use a Discretionary Fund Manager (DFM)?

SC: As advisers know, working with a DFM can be an ideal solution where they are looking to outsource the day-to-day asset allocation and fund selection decisions, allowing them more time to focus on clients’ financial planning requirements.

Cazenove Capital is the wealth management business of Schroders in the UK and Channel Islands. We have a dedicated DFM team whose strength is founded on the lasting relationships that they build with advisers and their clients, combined with our access to the global expertise of the Schroder Group.

SW: How does the Cazenove Capital DFM service operate? Do you work in partnership with the adviser or is it more “off the peg”?

SC: Our discretionary fund management team works very much in partnership with the adviser. Everyone is different and has different needs so we are focused on each adviser’s individual requirements and on delivering a high level of service to the adviser and the client. Both the adviser and client will have direct access to a portfolio manager and dedicated support team. Following a well-established central investment approach, we develop and implement the most suitable portfolios whilst aiming to deliver superior risk-adjusted returns in line with clients’ risk profiles and financial requirements.

SW: Steven, can you talk us through the investment process?

SR: Our investment philosophy for the bespoke portfolios, as with the Model Portfolio Service (MPS) which we can also offer as an attractive alternative, is underpinned by two key factors: an understanding of the business cycle (see Chart 1) and its impact on different asset classes and underlying investments, as well as a strong belief in the merits of diversification.

Chart 1 shows the business cycle as we currently see it. Around the world different markets will almost always be in different phases of the cycle at different times. This assessment strategy is embedded right across our investment process. Being able to select those assets in those areas where we see strong growth potential is crucial.

We are fortunate to have huge resources for research and analysis behind us. That’s not just at Cazenove Capital but also within the Schroders network too. There are many fund managers who we can tap into for insight for example, plus economists for views and opinions. Our investment process is specifically designed to ensure a robust, repeatable approach to delivering on our core investment beliefs and is comprised of the following components:

Investment Policy

The house investment policy is set by the Wealth Management Investment Committee (WMIC), chaired by the Chief Investment Officer. The WMIC sets guidance as to the expected outlook for different asset classes, sub asset classes and regions. The remit of this committee is:

  • To determine a central macro overview for the world’s major economies, with a particular emphasis on current and anticipated changes in the business cycle
  • To consider the implications of recent and prospective changes in monetary policy, fiscal policy and government regulation and geo-political developments

Our approach to investing focuses on the business cycle and explicitly evaluates current and future economic and investment environments in order to take calculated views from a top-down asset allocation perspective.

Investment Research

We have a disciplined manager research process alongside a strong and deep capability involving all members of the investment team as well as portfolio managers. This structure allows us to invest with the very best managers as well as being able to evaluate the evolving investment opportunity set.

SW: How does your DFM service differ from other managers?

SC: We use a broad range of asset classes when it comes to investment, on the DFM side we use a lot of wider products such as structured products and alternatives which we believe is a strong value add for investors. It really differentiates us from our peers.

There are three elements which differentiate our offering from competitors. When it comes to investment, on the DFM side we use a lot of wider products and invest in alternative areas such as structured products, targeted absolute return, property and other specialist vehicles. All of which can be used to deliver strong risk-adjusted returns.

Secondly our exposure to the wider Schroders’ investment engine puts us in a unique position. Given, the huge scope for research we have internally, there isn’t any investment or asset class that we can’t use within the portfolios for investors. Within the group we have access to specialists in almost every area of investment. This gives us incredible strength through having the resources to build portfolios which are underpinned by strong research and analysis as well as robust processes.

Finally as well as different fund management styles we can blend the management approaches. When constructing the portfolios, we look at how assets work together with each other. We look at different fund managers, how they work and the different strategies they use so that we can blend those management styles. Combining these complementary approaches, boosts portfolio diversification and reduces volatility, whilst helping to deliver strong long term returns which investors want.

SW: How does the DFM service proposition work? What does it cost and what can advisers expect?

SC: The DFM team is set up purely to work with advisers and their clients. It works on a partnership basis with the adviser, the client and the portfolio manager to create a bespoke portfolio which is based on the clients’ aims, objectives and risk profile. It ensures a highly personalised service for the client. This service means that you are getting face to face portfolio management and a more bespoke portfolio. It is something which is built specifically for the individual client.

We deliver full online reporting and there’s also an app to make it even easier to view the details. There has been lots of investment made by us into these areas recently which is great. Both the client and the adviser have access to clients’ information through that same portal. It really is efficient for the adviser. Our standard fees for bespoke portfolios for clients investing from £200,000 up to multi million pound portfolios are 0.85% on the first £1million (which includes all custody fees) then 0.5% over that.

We have a varied client base ranging from pension pots through to multi-million pound portfolios across the world. One thing we’ve focused on over the years is busting the myth of feelings like “we’re too small for Cazenove Capital”. That simply doesn’t apply at all.

Around the world, different markets will almost always be in different phases of the cycle at different times

SW: Are there any other services which are of interest to advisers and their clients?

SC: Yes indeed. The breadth of services we can provide is huge. Aside from the DFM and MPS portfolio services, we can run AIM portfolios, charity portfolios, corporate pensions, banking and treasury – you name it we can handle it. We are here to provide the services which advisers want. We’re just not about forcing a solution upon them in any way. It’s about being adaptable and providing effective solutions for advisers and their clients that really work for them.

By working together with the adviser we can make sure that the client really does get access to the very best opportunities for strong, long-term investment returns as well as peace of mind from knowing that their assets are in safe hands.

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