DFM: What is a DFM?


The role, the guidance, the value!

In the dynamic landscape of financial advisory practices, the role of discretionary fund managers (DFMs) stands out as a very important part of optimising strategies. In South Africa, we particularly witnessed this with the sudden emergence in recent years of more and more DFMs. It seems that it has become imperative for independent financial advisors who strive for excellence to incorporate a DFM into their practice. Mostly, it was done for one purpose only: portfolio management. But we questioned this and found that the role of the DFM goes beyond mere performance and fund selection choices.

What is a DFM?

The word discretionary fund manager, or DFM, or even discretionary investment manager (DIM) describes a professional entity or individual entrusted with the responsibility of managing investment portfolios on behalf of clients. They typically have a mandate to make investment decisions without requiring explicit approval for each transaction. These managers often operate within predefined investment mandates tailored to suit the client’s objectives and risk tolerance.

The history of a DFM

The concept of a DFM traces back to the early developments of modern financial markets. In the 20th century, the need for more specialised expertise in managing investment portfolios became apparent. Initially, discretionary management services were primarily offered by larger institutions and catered more to higher-earning individuals or institutional clients. Over time, the role of financial advisors became more defined, and more was expected from financial advisors. With the increased regulatory issues advisors faced and the administrative pressure of the industry, advisors started to turn to DFMs. With an increase in the complexity of investment products on offer and clients demanding more value from their advisors, the need for DFMs increased.

What value can a DFM offer an independent financial advisor?

  1. Expertise, skills, and capabilities: DFMs bring extensive expertise and knowledge to the table. While financial advisors in many instances are just as well educated, they may not necessarily have all the capabilities and manpower in house to do the necessary research.
  2. Time: While some advisors may be well versed in investments, they do not necessarily have the time to constantly research markets and strategies while also having to spend time building relationships with their clients. Managing portfolios entails substantial time and effort, and by delegating these responsibilities to a DFM, an IFA can focus on helping clients achieve a life of financial wellbeing.
  3. Risk Management: DFMs employ sophisticated risk management strategies in their processes. This can safeguard client portfolios against market volatility and downside risks. DFMs are often in a position to be more proactive than IFAs, and they ensure investment objectives are pursued while staying within acceptable risk parameters. A good example is the bucket strategy often employed in-house by IFAs. Many research papers have shown that IFAs do not rebalance their client portfolios diligently due to market timing, mostly due to them not following a scientific and robust process but a human process. Should they ‘feel’ the time is not right to rebalance, or should they make a ‘personal call’ not to rebalance, the research shows that many times they can’t stay objective, proactive, and diligent. A DFM can offer the IFA a solution to this problem.
  4. Diversification and Asset Allocation: DFMs utilise diverse investment strategies and asset allocation techniques. They often have access to broader opportunity sets and sometimes even to cheaper fund pricing. In most instances, DFMs have shown that they offer IFAs access to boutique managers.
  5. Regulatory Compliance: In highly regulated financial environments such as South Africa, adherence to regulatory standards is very important. DFMs often offer additional compliance support and ensure their own practices and processes adhere to the necessary regulatory guidelines. This can further reduce the compliance burden for IFAs.

Imagine you can find a DFM that can truly offer you an end-to-end management solution where your compliance, suitability assessment (risk profile), fund selection, strategy selection, proposal, and review are sorted.

As one of South Africa's leading DFMs, Amity Investment Solutions truly focuses on helping independent advisors remain independent.

Yes, we do have excellent model portfolio offerings (which can be viewed here). And yes, we are very cost-effective. But we also understand that our value lies in more than just the funds on offer. As a boutique outcomes-based fund manager, we focus on a range of outcomes-based investment solutions that will ensure you offer your clients peace of mind. We want you, the IFA, to help your client on their road to financial wellbeing. We believe this is possible when advisors can get the support they need, such as a unique planning tool incorporating client events and client goals. We believe in a suitability assessment as more and more pressure by the regulator shows the traditional risk profile tools are not sufficient any longer.

Amity Investment Solutions wants to partner with independent financial advisors who value their relationship with their clients.

As the financial landscape continues to evolve, the partnership between Amity and independent financial advisors is poised to thrive, empowering investors to navigate the complexities of the market with confidence and conviction.

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