DFS was previously known as Deloitte Financial Services and was the financial planning arm of the accounting firm, Deloitte Touche Tohmatsu from 1987 to 2001. During this time, a rigorous manager research process was developed to assess the performance quality of specialist fund managers. The manager research process was applied to build Asset Class Model portfolios s to equip advisers with the requisite tools to customise the asset allocation of their clients.

The Principals of DFS have owned the business since 2002 and since this time DFS has been privately owned without any institutional ownership. DFS has continued to develop its manager investment research capabilities, the cost of which is internally absorbed. In this regard, DFS receives no payments from fund managers that are subjected to its manager research process and therefore is not subjected to adverse influences that arise from such conflicted models.

Whilst the DFS Asset Class Models performed well during the GFC in relative terms, the extent of capital losses prompted clients to question the veracity of how we (and indeed wealth management firms in general) manage portfolios. While advisors explained that the losses were caused by portfolio risk significantly breaching normal levels, clients typically responded with “why didn’t you manage the portfolio risk” …“isn’t that what you do?

Investors can be excused for thinking that their portfolios were “risk-managed” as wealth managers and advisors alike commonly use such terminology to describe how they construct conventionally managed portfolios. In reality, portfolio risk is left free to fluctuate as conventional portfolio management keeps the asset allocation constant (more or less) irrespective of changing market conditions. Investors are told that they must accept market turbulence in order to achieve their long term financial objectives, which is in stark contrast to the way investors think about risk. Advisors very well know that their clients prefer to increase wealth steadily rather than accept uncontrolled market turbulence.

In truth, conventional portfolio management has no other option but to allow risk to fluctuate freely as there is no other way to efficiently manage the trillions of dollars that managed within the system. Any attempt by institutions to change the asset allocation would move markets due to the sheer size and weight of resulting money flows.

In contrast, DFS Portfolio Solutions employs a risk-based asset allocation which thinks about risk the way clients do. While investors see risk as the failure to reach their financial objectives, they also see risk as the anxiety they feel when exposed to turbulent market conditions.  Our objective is to stabilise portfolio risk and we do this by changing the asset allocation as we observe changes in risk levels. We adopt this approach to reduce investor anxiety and we expect to produce better portfolio outcomes compared to conventional portfolio management. DFS Portfolio Solutions uses both active management (supported by it rigorous and proven manager research capabilities) to improve risk diversification and passive investments (to efficiently control market exposures and trading costs) as each has an important portfolio construction role in effectively managing portfolio risk.

Macroeconomic and capital market uncertainly suggests that investors should not rely on buoyant market conditions and that lower returns with heightened risk may ensue over the foreseeable future. DFS Portfolio Solutions provides portfolio management solutions to Independent Financial Advisory & Accounting firms that seek an alternative approach to conventional portfolio management – an approach that treats investors as clients rather than customers; an approach that uses its size advantage to reduce investor anxiety and improve outcomes by explicitly managing portfolio risk.