Kobus Kleyn has published over 200 articles and authored three books. He is a multiple award-winning professional and holds eight memberships with professional associations. His most recent awards were lifetime achievements awards from the FPI (Harry Brews), The Million Dollar Round Table (Top of the Table Life Membership) and Liberty Group (Life Membership) in 2021/22.
As a financial planner in South Africa, managing your client’s investments under your fiduciary duties requires considering all available options. One option that can provide significant benefits is outsourcing investment management to a discretionary fund manager (DFM).
DFMs are regulated by the Financial Sector Conduct Authority (FSCA) in South Africa. They offer financial planners and clients many benefits, including compliance, due diligence, efficiency, better long-term growth and more time to focus on clients’ planning needs. DFMs conduct thorough due diligence on investment products and regularly monitor their performance, protecting clients, especially in regulatory or market disruptions.
DFMs are particularly valuable for new advisors just starting their careers, as DFMs provide them with access to expertise and resources they may not have built up yet. This helps to build credibility with clients and deliver better outcomes for clients in the early stages of their careers.
DFMs reduce investment risk by diversifying portfolios across asset classes and products. This strategy helps protect clients’ investments against market volatility and downturns. DFMs can provide access to investment products and opportunities that may not be available to individual investors. With their expertise and resources, DFMs conduct in-depth research and analysis, allowing them to identify and take advantage of investment opportunities that may not be visible to the average financial planner. DFMs also provide an objective approach to investing, taking emotion from the equation and making investment decisions based on thorough analysis, research and risk profile. This helps to remove advisor noise from fund selection and leads to better long-term outcomes for clients and planners.
DFMs provide a high level of customisation for planners, tailoring their investment strategies to meet each client’s needs and goals, considering their investment amount, risk tolerance, financial goals and tax position. This level of customisation can lead to better outcomes for clients and help to build stronger relationships between financial planners and their clients.
DFMs are particularly valuable for new advisors just starting their careers, as DFMs provide them with access to expertise and resources they may not have built up yet. This helps to build credibility with clients and deliver better outcomes for clients in the early stages of their careers. By outsourcing investment management to a DFM, financial planners can shift the responsibility for conducting due diligence on investment products to the DFM, providing additional client protection and maintaining the planner’s reputation while protecting them against any ombuds office cases. As I always say, it only takes one client file that is not compliant, which can abruptly stop your career.
Additionally, working with a DFM allows financial planners to be a custodian of their clients’ financial plans and spend more time with their clients. It lets planners focus on clients’ needs and provide a more comprehensive service. Conversely, DFMs typically require a minimum investment amount, making them more appropriate for high-net-worth individuals or those with substantial investments. DFMs charge fees for their services, which can be higher than those charged by other funds managed by advisors.
Before recommending this option, financial planners must carefully assess their clients’ investment goals, risk tolerance, financial position, and the fees and investment process associated with using a DFM. While DFMs can provide significant benefits, they may not suit all clients. Some clients may prefer a more hands-on investment approach or have goals that do not align with the DFM’s investment strategies. For planners, it allows for a passive process, while the DFM becomes the active manager.
A DFM gives planners more time with their clients on financial planning, which is the main objective. Financial planners should consider the do’s and don’ts of outsourcing investment management to a DFM. Outsourcing investment management to a DFM in South Africa can provide significant benefits.