My investments have lost value over the last few months because of the coronavirus crisis.  My financial adviser is recommending that I move my funds over into a portfolio that is managed by a “Discretionary Fund Manager” so that I can keep my losses as small as possible and benefit from recovery when it does happen.  Is this worth doing particularly as it seems everything has lost value this year?  This is going to cost me more in fees so I’m really not sure it’s worthwhile.

Carl Lamb of Smith & Pinching Responds

Discretionary Fund Management is a service where an investment expert adjusts the content of your investment portfolio without having to get your sign-off every time.  The portfolio manager will be monitoring market indicators and should hopefully spot changing trends as they happen.  This means that your portfolio can be adjusted quickly and efficiently as markets change, within certain parameters agreed with you.  In particular, the changes will always keep your portfolio aligned with your investment risk profile so that you are never exposed to more risk than the level that you’ve agreed with your adviser to be right for you.

You are right that the fall in markets has affected portfolio values across the board so no portfolio manager would have been able to prevent some impact on the overall value of your investments.  However, a manager may have been able to mitigate the impact to a degree and, importantly, may be able to take advantage of rising values as and when they happen.

Moving investments at a time when values are very low presents both risks and opportunities.  On the one hand, selling investments at a lower value than you may have invested at the outset may feel uncomfortable, but on the other hand if you can take advantage of opportunities to buy when markets are low, you could potentially see greater returns (although, of course, returns cannot be guaranteed).  It’s really important to do this carefully so advice and the intervention of a portfolio manager will ensure that you are working within a strategy that is right for your circumstances, objectives and investment risk profile.

Portfolio management can be offered through independent financial advice firms either as part of their core investment service, where it may be covered under your annual advice fee, or as an add-on provided by a third party when it may involve additional fees.  It’s important to discuss this with your adviser so that you understand what costs are involved.

Any opinions expressed in this article do not constitute advice.  The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

Carl is a Director and Chartered Financial Planner with Smith & Pinching