Investment Management Options: DFM vs MPS vs Active Fund Advice

Overview

Investors typically choose between three approaches to managing their pensions, ISAs, GIAs and investment portfolios:

• Discretionary Fund Management (DFM)
• Managed Portfolio Services (MPS)
• Active, adviser‑led fund selection and asset allocation

Each option has different levels of personalisation, cost, and control.

Common Investment Charges

Most investment structures include three layers of fees:

Platform / Provider Charges

• Typically 0.3% – 0.5% p.a.
• Charged by the investment platform or product provider.

Fund Manager Charges

• Typically 0.3% – 1.5% p.a.
• Lower for passive trackers.
• Higher for specialist or actively managed funds.

Financial Adviser Charges

• Typically 0.5% – 1.0% p.a.
• Some advisers offer fixed‑fee reviews instead of percentage fees.

Total Cost Examples

• Lower‑cost passive approach: ~1.1% p.a.
• Higher‑cost active approach: up to 3.0% p.a. in some cases

Outsourcing Investment Management

Many advisers outsource fund selection and asset allocation to third‑party managers.

What Outsourcing Means

• Adviser passes responsibility to a DFM or MPS.
• Additional fees apply for the outsourced service.
• Advisers often do not reduce their own fees, despite reduced workload and liability.

Discretionary Fund Management (DFM)

Definition

A DFM manages your portfolio on a fully discretionary basis, making buy/sell decisions without needing your approval.

Key Features

• Active decision‑making without client sign‑off
• Bespoke portfolios tailored to individual goals
• Professional research teams and wider investment access
• Higher costs, often with VAT
• Different from advisory, where every change requires your approval

Managed Portfolio Service (MPS)

Definition

An MPS provides a range of risk‑targeted, professionally managed portfolios, usually delivered through investment platforms.

Key Features

• Discretionary management within a predefined model
• Risk‑mapped portfolios (cautious → adventurous)
• Diversified, transparent holdings
• Lower cost than bespoke DFM
• Regular monitoring and rebalancing

The “Square Peg, Round Hole” Problem

DFM and MPS portfolios are not personalised financial plans.

They typically do not consider:

• Your income needs
• Your retirement timeline
• Your decumulation strategy
• Your tax position
• Your estate/IHT planning
• Your long‑term care needs

They match you to a model, not to your life.

Active Financial Advice & Tailored Asset Allocation

What Active Advice Provides

• Decades of combined market experience
• Personalised fund selection
• Professional research tools
• Analysis of volatility, deviation, and peer‑group consistency
• Holistic portfolio construction across all your pensions and investments
• Focus on income, growth, risk, and long‑term planning
• Flat, fixed fees per policy review (not % of total wealth)

Key Questions to Ask Your Adviser

• Are you actively selecting and monitoring my funds?
• Are you outsourcing to a DFM or MPS?
• If outsourcing, have you reduced your fees to reflect the extra DFM/MPS charges?
• Who is actually managing my money day‑to‑day?

Quick Comparison Table

FAQs

What is the difference between DFM and MPS?

A DFM builds a bespoke portfolio for you.
An MPS places you into a pre‑built model aligned to your risk level.

Are DFMs more expensive?

Yes.  DFMs typically charge higher fees and often add VAT.

Does an MPS consider my personal tax or retirement needs?

No.  MPS portfolios are designed for groups of investors, not individual circumstances.

Is adviser‑led fund selection cheaper?

Often yes, especially when advisers use flat fees instead of percentage‑based charges.

Should my adviser reduce their fee if they outsource to a DFM/MPS?

Many clients expect this, but not all advisers do it — so it’s important to ask.

Which option is best for me?

It depends on your:

• portfolio size
• need for personalisation
• cost sensitivity
• tax and retirement planning requirements

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