BLUECHIP2025 DFM GUIDE -
BLUECHIP2025 DFM GUIDE - INTRODUCTIONChoosing the right DFMA thorough due diligence before you start and finding the right fit foryour advisory practice are key to partnering successfully with aDiscretionary Fund Manager.There is a long list of factors to consider when choosinga Discretionary Fund Manager (DFM), but the mostimportant factors are the experience of the team, theirproven performance, their approach to investing andhow all these align to your business’ philosophy.It is relatively easy to check out who is on the DFM’s team,but more difficult to consider performance as there isn’t a lotof transparency or comparability when it comes to the returnsa DFM earns for clients.The DFM teamPat Magadla, head of distribution at Equilibrium, believesinvestment skill is the most important factor; the DFM needs aninvestment team that can offer broad manager research coverage,both locally and globally, and they must have demonstrable assetallocation skills and portfolio construction expertise that is in linewith the investment outcomes clients need.Advisors should consider a DFM’s actual track record andexperience of managing assets, according to Leigh Kohler, headof DFM at INN8 Invest.Advisors should be careful of DFMs without a good recordand should instead look for a DFM with an institutionalisedphilosophy, process and team.Barry O’Mahony, founder of Veritas Wealth, believes a DFM’steam should include people with the right levels of qualificationand experience, who also have access to asset managers.George Dell, executive director at MitonOptimal, suggestsadvisors should do a due diligence on several DFMs before theyselect one. They should consider the people, their qualifications,the structure of the business and how long they have beenmanaging money.Team sizeKohler’s view is that team size is also important as DFMsmust cover both local and global manager research; managea large amount of both core and customised portfolios;manage reporting; manage client needs and manage risk andcompliance management.According to Kohler, smaller teams struggle to cover thesebasics and grow their businesses at the same time, so advisors8
2025 DFM GUIDE - INTRODUCTIONBLUECHIPshould be sure that their chosen DFM partner is sufficientlycapacitated to perform all these functions.O’Mahony agrees it is important to find a team that can do bothlocal and global portfolios and one that has the ability to executeon a global mandate on an offshore platform.PerformanceConsidering the investment skills within the team is ultimatelyaimed at ensuring the DFM delivers good performance.O’Mahony believes performance is very important butadmits it is still difficult to compare DFMs on the basis of theirperformance.Palesa Dube, founder of Centillion Wealth, considersperformance important, with an emphasis on optimisedportfolio performance and risk-adjusted returns. Overallcosts, reporting, ease of engaging and added benefits are alsodeterminants.Craig Gradidge, independent financial advisor andco-founder of Gradidge-Mahura Investments (GMI), points outthat the funds of some advisors who partner with DFMs havewon industry awards, but it is difficult to determine if this is aresult of the choices made by the advisor or the DFM.GMI focusses on top-quartile performance but instead ofchasing the absolute best performance overall investmentperiods, its investment philosophy is designed to deliverconsistently strong investment performance with goodprotection against down markets.Since partnering with a DFM, it has continued to achieve thatoutcome and GMI has the assurance that it has access to highlyqualified people that ensure it is getting a good solution, he says.IndependenceAdvisors should also consider whether they want an independentDFM or a corporate that may incorporate its own funds in theportfolios it constructs, Dell advises; and believes there is a lot moreflexibility and ingenuity in the independent market. A DFM shouldbe able to tailor-make solutions for an advisor and not just provideready-made investment solutions.Gradidge agrees the independence of a DFM is key andthat it influences the relationship an advisor can build with aDFM partner.Investment alignmentJonel Matthee Ferreira, chief executive officer of Cogence,believes advisors should choose DFMs whose investmentapproach aligns with their own in delivering the best outcomesfor clients.The advisor should be comfortable that the investmentoutcomes of the portfolios are clearly articulated and that theinvestment process and philosophy followed by the DFM willresult in the desired outcome, she says, and lists relationshipmanagement as the second most important factor.Dube and Gradidge both say that they sought DFMs whoseinvestment philosophy aligned with theirs.Gradidge says he will not engage with DFMs that only offeroff-the-shelf solutions.Kohler recommends that advisors check whether theirchosen DFM provides a “one-size-fits-all”, “cookie-cutter”proposition or if they are able to customise and adapt to thespecific needs of the advisor’s practice.Not all advisor practices are the same – therefore their needsare not the same either, he says.O’Mahony agrees that there are some DFMs that claim to beDFMs, but they are actually multi-managers and not interestedin customising portfolios for advisors’ clients.A DFM should be able to offer portfolios designed to cater toyour client’s specific needs, whether this is capital protection,liquidity or capital growth over their specified time horizon,Magadla says.Asset size and priceKohler says that DFM profit margins are low so the size of theassets under management is important for the DFM businessto achieve scale.Advisors must therefore take asset size into account as it isnot only an indication of positive economics but also providesinsights on client satisfaction, he explains.Magadla agrees scale is important and says it enablesDFMs to negotiate preferential pricing and pass it on totheir clients.Matthee Ferreira’s view is that advisors should always checkthe price and the value proposition being offered.Kohler also suggests advisors check the DFM is a profitableand going concern.Not all DFMs can provide this kind of comfort to their clientsbut these should be key inputs into the decision-makingprocess of advisors regarding which DFM to partner with.Gradidge says that the DFM-managed investments offeredto a client should be as cost-effective, or better, than anyinvestments you could manage yourself. It should not costinvestors more than they are currently paying to benefit froma DFM’s services.Other factorsMatthee Ferreira lists the other factors that advisorsshould consider when deciding on a DFM as: their productrange, technology and the reporting they do for the benefitof clients.Dell believes it is important to look for DFMs whoprioritise innovation in the products they offer, keeping themcompetitive and able to meet diverse client needs. Inaddition, DFMs should provide solutions such as tax-freesavings accounts and hedge fund model portfolios and headds that a capable DFM should ensure their investmentsolutions are accessible across any platform.Kohler suggests advisors look for DFMs that aretransparent and make their fact sheets freely available ontheir websites.Magadla recommends looking for a DFM that offerssimplicity and operational efficiency. Although the backend may be complex, the financial advisor's experienceshould be that the investment management processis easier.Another important advantage of working with a goodDFM, according to O’Mahony, is that planners can learn anddevelop from working with an experienced and quality DFM.9
