How a Discretionary Fund Manager can assist financial advisers

Blue Chip spoke to Florbela Yates, Head of Momentum Investment Consulting at Momentum Investments about the benefits of partnering with a DFM.


Partnering with a Discretionary Fund Manager (DFM) stands to benefit financial advisers in a number of ways that translates into a higher degree of professionalism and client satisfaction. For further insight, Blue Chip spoke to Florbela Yates, Head of Momentum Investment Consulting at Momentum Investments.

Boosting professionalism

Being able to call on a DFM helps financial advisers to create investment solutions aligned with their advice process so that they are better able to match their clients to the desired outcomes. Yates elaborates: “Often the partnership with the DFM creates focus and provides the catalyst for the adviser to review the offering and to consolidate clients into more suitable funds.

“In almost all instances, when we initially partner with a financial adviser, they tend to have an investment book with hundreds of different underlying funds. By reviewing their needs, we usually come up with a range of solutions that is better suited to the current market and aligned with the goals that the adviser is solving for clients. The end result is that the adviser is left with a smaller range of funds. We provide detailed information on the funds regularly (their main holdings, how they are positioned and expected to perform in different market conditions as well as information about performance). With fewer funds, the advisers get to know the funds better.”Another benefit is time saving. Under the Fais Act, advisers with a Category I licence need the investor’s permission to make changes to their investment portfolio – a very time-intensive process. DFMs, on the other hand, operate under a Category II (asset management) licence.

“The adviser would get their client to sign a discretionary investment mandate with the DFM when they initially move into the DFM solution. This allows us to make changes across portfolios using our investment discretion as asset managers. We don’t need to get a client’s signature every time. We rebalance our funds more regularly taking into account both the current and future market environment. In addition, we can make changes across all the investors in each fund simultaneously,” says Yates.

“This frees up advisers’ time and allows them to focus their time on giving advice while we focus on managing the assets. All the reporting is provided by the DFM, so advisers no longer need to consolidate information from multiple sources to determine how each client’s portfolio has done. Advisers now have more time available to focus on growing their practice and finding new clients. They also have more time with existing clients providing a more professional service,” she adds.

Partnering with a DFM makes administration and implementation processes much simpler.

“The DFM becomes responsible for all the functions related to the adviser’s clients’ investments. This DFM will liaise with each of the chosen platforms to make sure that all the necessary funds are available and that the adviser’s solutions are uploaded. They perform all the rebalancing and Regulation 28 checks, ensure that all changes are implemented and do all the necessary reporting. The DFM produces and consolidates all fact sheets and quarterly reports,” Yates explains.

Florbela Yates

Furthermore, the services of a DFM allow for improved governance and compliance while ensuring consistent investment outcomes.“The DFM does the investment and operational due diligence as well as the fund construction and ongoing monitoring. It is their responsibility to make sure that the managers do not breach any mandates and that the platforms execute instructions accurately and timely. This removes the governance and compliance burden of managing the assets from the adviser.

The DFM monitors any changes in legislation and it is their responsibility to make sure that necessary changes are made whenever necessary,” says Yates. The DFM is required to monitor the funds regularly and ensure that they maximise the probability of delivering on the investment outcomes promised to clients.”

Yates points out that the client whose adviser partners with a DFM will benefit from much improved communication.

“The DFM uses their tools and skills to provide all information about the funds. This allows for much more detailed information. All changes are communicated to clients with detailed explanations for these. Where an event affects a fund, this is also done immediately. Clients can have the peace of mind that a professional investment team is actively monitoring and managing their investments. Examples are where a share loses significant value over a day or two, or where a portfolio manager (or a team) leave an investment house. The DFM will immediately assess how this could affect the fund and whether they need to make any changes,” Yates concludes.