The mechanics of discretionary fund management change somewhere around GBP 1m of investable assets. Below that line, the conversation is about risk grades and platform availability. Above it, the conversation is about realised-gain budgets, concentrated positions, custody counterparties and who holds the regulatory relationship. Advisers who run the same DFM selection process for a GBP 2m client as for a GBP 200,000 client are answering the wrong exam question.
This guide covers what actually changes when you appoint a DFM for high-net-worth clients: the mandate decision, the fee mathematics, the tax dimension that quietly dominates outcomes, and the structural questions most selection processes skip.
Four things that change above GBP 1m
Bespoke becomes available and often defensible. Most bespoke discretionary services set minimums between GBP 250,000 and GBP 1m, so an HNW client clears the entry bar everywhere. Whether bespoke is the right recommendation is a separate question; the suitability triggers are covered in our guide to when bespoke portfolio management earns its fee. The short version: a concentrated holding, a hard exclusion list, multi-wrapper tax overlays, international tax exposure or a trust structure justify bespoke. Their absence usually does not.
Fees taper, but only if you ask. Published rate cards are opening offers at this level. A flat AMC quoted on a GBP 3m mandate should be treated as the start of a negotiation, not the price.
Tax management becomes the main event. An unwrapped GBP 2m general investment account produces taxable events on nearly every rebalance. The manager’s approach to realised gains is worth more than their view on equity regions.
Counterparty and custody risk become client questions. At GBP 200,000 nobody asks where the assets are held. At GBP 5m the client’s solicitor does. You need a good answer before they ask; see the role of institutional custody in client confidence.
The mandate decision
Three service shapes dominate UK practice for HNW clients.
| Service shape | Typical fit | Watch for |
|---|---|---|
| Risk-graded MPS | GBP 500k to 1m, simple wrapper structure, no constraints | Identical rebalancing across wrappers creates avoidable CGT |
| Hybrid or premium MPS | GBP 750k to 1.5m, mild preferences, multi-wrapper | Marketing as “personalised” while running as a model |
| Bespoke discretionary | GBP 1.5m+ or any client with a hard constraint | Paying bespoke fees for a model in disguise |
The comparison between the first and third shapes is covered in detail in model portfolio services vs bespoke portfolios. The practical trap at HNW level is the middle row: services priced near bespoke that operate as models. Ask for a redacted statement from a comparable client and read the trade history. If forty clients traded the same stock on the same day, it is a model, whatever the brochure says.
Fee mathematics at HNW scale
Headline AMC comparisons mislead at this level because the components move independently. A GBP 2.5m bespoke mandate at 0.60 percent with nominal transaction costs and institutional custody can cost less all-in than a premium MPS at 0.30 percent with retail fund OCFs stacked on top. The full component breakdown is in our guide to DFM charges; the HNW-specific points are these.
- Tapering is standard above GBP 1m. A common shape is one rate on the first million and a materially lower rate thereafter. Always model the blended rate on the client’s actual balance.
- Family aggregation is negotiable. Many DFMs will aggregate spouses, children and trusts for fee-band purposes. Few volunteer this.
- Transaction costs matter more in bespoke. Direct equity and gilt portfolios trade with explicit costs an MPS buries inside fund OCFs. Ask for twelve months of actual transaction cost data, not estimates.
Entry thresholds themselves vary widely by provider and service tier; our DFM minimum investment guide covers the current landscape.
Tax is where HNW discretionary management is won or lost
The arithmetic has hardened over the last three tax years. The CGT annual exempt amount sits at GBP 3,000, the dividend allowance at GBP 500, and gains above the basic rate band are taxed at 24 percent, per the current HMRC capital gains tax rates. For a client with GBP 1.5m outside wrappers, an unmanaged rebalance can hand a five-figure sum to HMRC that a gain-budgeted rebalance would have deferred or avoided.
What good looks like in practice:
- A written realised-gain budget agreed annually with the adviser, expressed in pounds, not sentiment.
- Loss harvesting run systematically across the year, not in a March scramble.
- Asset location logic that puts income producers inside the SIPP and ISA and growth assets in the GIA.
- CGT reporting that reconciles to the pound, delivered in time for the client’s return.
The wrapper-by-wrapper treatment is set out in our guide to the tax implications of DFM portfolios for HNW clients. Two forward-looking pressures sharpen the point this year. Pension death benefits are due to come within inheritance tax from April 2027, which is already changing decumulation ordering for HNW clients. And with an autumn Budget ahead, advisers are again fielding client questions about further CGT changes. Nobody can plan against speculation, but a DFM that can execute a phased disposal plan quickly when rules do change is worth identifying before the event, not after.
Structure: who is the DFM’s client?
At HNW level the contractual structure stops being paperwork and starts allocating real liability. Under agent as client, the DFM treats your firm as its client and you carry suitability responsibility for the underlying investor. Under reliance on others, the DFM owns the end-client relationship and relies on your information under the provisions in COBS 9A and related rules. The differences, and the questions to ask before signing, are set out in agent as client vs reliance on others.
For complex HNW clients the practical test is simple: get the DFM to confirm in writing which structure applies, what they are relying on you for, and who answers to the client when something goes wrong. Ambiguity here survives right up until a complaint, and no longer.
A selection shortlist that reflects the money
Standard DFM due diligence still applies; the framework is in our guide to due diligence when choosing a discretionary fund manager. For HNW mandates, add five questions.
- What is the median client size on this specific service, and where would my client sit?
- Show me the realised-gain budget process for a taxable GBP 2m account, with a worked example.
- What is the blended fee on my client’s actual structure, including family aggregation, in writing?
- Who is the custodian, what is the legal structure of asset segregation, and what is the counterparty’s balance sheet?
- Which named individual manages the portfolio, how many portfolios do they run, and what happens when they leave?
A provider that answers all five in writing within a week is telling you something about their operational capacity. So is one that cannot.
For advisers newer to the discretionary market, the foundational questions of how these services work and how they are regulated are covered in discretionary fund management: what advisers need to know.
The bottom line
DFM selection for high-net-worth clients is not an upsized version of the retail exercise. The fee question becomes a negotiation, the tax question becomes the performance question, and the structural question becomes a liability question. Advisers who run the process on those three axes, and document it, end up with arrangements that survive both the client’s solicitor and the FCA’s file review. The rate card is the least interesting page in the pack.
Frequently Asked Questions
What is a DFM for high-net-worth clients?
A discretionary fund manager (DFM) runs investment portfolios on a client's behalf, making buy and sell decisions within an agreed mandate without seeking approval for each trade. For high-net-worth clients, typically GBP 1m and above in investable assets, the service usually moves beyond risk-graded model portfolios into bespoke mandates that accommodate concentrated holdings, multi-wrapper tax planning, exclusion lists and trust or corporate structures.
At what portfolio size does bespoke DFM make sense?
There is no statutory threshold, but UK practice converges on a range. Below roughly GBP 500,000 a model portfolio service is almost always the better net outcome. Between GBP 500,000 and GBP 1.5m the answer depends on whether the client has a specific constraint a model cannot handle, such as a concentrated holding or a hard exclusion list. Above GBP 1.5m bespoke becomes the default because tax-aware management and fee tapering start to outweigh the higher headline charge.
How much does a DFM charge a high-net-worth client?
Bespoke discretionary fees in the UK typically run 0.40 to 0.75 percent a year on portfolios between GBP 1m and GBP 5m, tapering on additional assets, with underlying instrument costs and custody on top. Above GBP 5m headline rates of 0.25 to 0.50 percent are common and negotiable. Advisers should always request the all-in figure covering management, underlying OCFs, transaction costs and custody, not the headline AMC alone.
Why does tax management matter more for HNW discretionary portfolios?
Because most of an HNW portfolio usually sits outside tax wrappers. With the CGT annual exempt amount at GBP 3,000 and the dividend allowance at GBP 500, an unwrapped GBP 2m portfolio generates tax events on almost every rebalance. A DFM that manages realised gains against an agreed annual budget, harvests losses and locates income-producing assets in the right wrapper can add more after-tax value than most managers add through security selection.
Should the adviser use an agent as client or reliance on others structure with the DFM?
Both structures are common and both work, but they allocate regulatory responsibility differently. Under agent as client, the DFM treats the adviser firm as its client, so the adviser carries suitability responsibility for the underlying investor. Under reliance on others, the DFM takes the end investor as its own client and relies on the adviser's information. For HNW clients with complex circumstances, advisers should confirm in writing which structure applies and what the DFM is relying on them for.