What role do you believe DFMs play in improving client outcomes?
In an investment landscape defined by complexity, volatility and an overwhelming choice of investment solutions and products, discretionary fund managers have become indispensable partners in supporting better client outcomes. Their contribution goes far beyond portfolio construction. They bring structure, discipline and professional oversight to a process that significantly influences financial success.
A core advantage of a DFM lies in their ability to apply institutional-grade investment processes to retail investment solutions. Using rigorous quantitative and qualitative analysis, robust due diligence and continuous monitoring, DFMs construct portfolios that are well-diversified, risk-appropriate and aligned with clearly defined objectives. This structured approach results in outcomes that are not only more consistent but also more resilient through market cycles.
DFMs also play a vital role in reducing behavioural risk, which is the emotional decision-making that often leads to investors buying high and selling low, or abandoning an investment strategy prematurely. By maintaining discipline through strategic asset allocation and deliberate risk management, DFMs help clients stay invested through uncertainty, which is fundamental to achieving their goals.
Another benefit is enhanced diversification. DFMs blend multiple fund managers and investment styles, reducing reliance on any single manager and improving the potential for stronger risk-adjusted returns. Their research depth positions them to identify opportunities and mitigate risks more effectively.
Cost-efficiency and transparency further strengthen the value we provide at Independent Investment Solutions. We create cost-effective building blocks by negotiating favourable investment management fees on behalf of financial advisors and their clients.
Our reporting, regular communication and the provision of access to our investment committee also give our advisors and their clients clearer insight into performance, risks, fees and portfolio positioning.
Importantly, DFMs allow financial advisors to focus on what matters most: building client relationships, creating personalised financial plans, focussing on estate planning and tax structuring and supporting clients through the emotional side of investing. With the investment process professionally delegated, advisors can dedicate more time to delivering holistic, goals-based financial guidance.
Ultimately, discretionary fund managers enhance client outcomes by combining expertise, discipline, diversification and behavioural guidance. Their involvement leads to more consistent and more strategically aligned portfolios. This empowers financial advisors to deliver a stronger, more dependable investment experience for their clients.
Are DFMs just an extra layer of cost?
A common criticism in the industry is that DFMs simply add another layer of costs for clients. While it is true that DFMs charge a fee, there are two factors that need to be considered, the first being the value added for the fee charged, and the second being the fact that the institutional fee discounts available to the DFM may outweigh the DFM fee that is levied, thus making the DFM solution cheaper.
Regardless, when assessing a DFM, the focus should extend far beyond cost alone. The real measure of a DFM lies in its overall value proposition; the quality and consistency of its investment process, the strength of its risk management framework, the depth of its research and, crucially, the performance of its solutions relative to their stated benchmarks and objectives over their defined time horizons. These elements determine whether a DFM is merely a cost or a meaningful contributor to long-term client outcomes.
The well-known principle applies here: price is what you pay; value is what you get!
A skilled and disciplined DFM can enhance diversification, remove behavioural pitfalls, improve portfolio consistency, reduce manager-specific risk and support better after-fee outcomes by applying a structured, repeatable investment process. These benefits, when delivered effectively, far outweigh the marginal cost that may be added to the investment value chain.
It is also important to address the issue of performance fees. While performance-based fee structures are common in parts of the industry, we at Independent Investment Solutions believe they introduce unnecessary complexity. For this reason, we exclude performance fees entirely from our investment solutions. Our commitment is to deliver transparent, predictable and fair pricing, ensuring advisors and their clients clearly understand exactly what they are paying for. Ultimately, the question should not be whether a DFM charges a fee, but whether they deliver value that justifies that fee.
Should DFMs publish performance tables like fund managers?
Yes. Transparency is the cornerstone of trust in financial services, yet DFMs have historically operated with far less public reporting than fund managers (CIS Funds). As DFMs increasingly influence investment outcomes, it is both reasonable and necessary for the industry to move towards more standardised, comparable and openly accessible performance disclosures. This shift would not only enhance accountability but also help advisors make more informed decisions on behalf of their clients.
Legislative evolution will likely play a key role. As the DFM industry grows, regulators are expected to introduce clearer frameworks governing disclosures, performance reporting and due-diligence requirements. These changes would bring DFMs closer to the standards that fund managers have adhered to for years – standards that improve comparability, consistency and overall market integrity.
At Independent Investment Solutions, for example, we do not report on back-tested or hypothetical returns at all. Every figure we present is grounded in actual portfolio history. Likewise, all information relating to performance, fees and portfolio composition is openly available and easy to access by any investor.
This level of openness is not only good governance, but also in the best interests of advisors and their clients. When DFMs are transparent, advisors can confidently compare methodologies, track records and fee structures and ultimately select a partner whose solutions genuinely support their clients’ goals.
As the industry continues to evolve, we believe that mandatory performance tables, standardised disclosures and uniform reporting requirements will become the norm – and we welcome that future. A more transparent DFM industry is a stronger, more trustworthy one.
About MICHAEL BADENHORST |
Michael Badenhorst is the Chief Investment Officer at Independent Investment Solutions and oversees the investment strategy and strategic direction of the business. He is a seasoned investment professional with more than a decade of experience in multi asset research, manager selection, portfolio construction, and performance measurement. Michael holds an MBA from the Stellenbosch Business School and is a CFA Charterholder.
