BLUECHIP2025 DFM GUIDE -
BLUECHIP2025 DFM GUIDE - PROFILEInvestment Solutionsby AlexforbesBased in Sandton, Johannesburg,Investment Solutions byAlexforbes is a newly establisheddivision of Alexforbes, SouthAfrica’s leading investments multimanager,entering the Discretionary FundManagement (DFM) market. InvestmentSolutions by Alexforbes was launchedin 2024 and leverages the investmentinsights as well as significant institutionaland retail scale of the broader AlexforbesInvestments business which has beenproviding multi-managed investmentsolutions to the retail and institutionalmarket for over 30 years.A diverse range of clientsInvestment Solutions by Alexforbescaters to a wide array of clients and IFAsin the South African market, rangingfrom clients requiring flagship modelportfolio solutions all the way to largerwealth managers requiring investmentconsulting services on their ownCategory II licence. Such clients may alsorequire various structuring needs fromtheir DFM, like access to market throughco-branding their own unit trust solutionsor pure manager research services whichare all provided through our DFM.With circa R100-billion of internallyand externally managed IFA assets, webelieve in multi-investments, investingin a broad range of asset classes fordiverse returns. Our multi-strategyapproach uses complementary strategiesfor smoother returns. Ultimately, as amulti-manager, we appoint top-ratedasset managers within this framework todeliver reliable outcomes.A holistic approachInvestment Solutions DFM is designedto assist Independent Financial Advisers(IFAs) by providing a holistic suite ofinvestment capabilities. This includes26access to comprehensive investmentmanager research, specialised multimanagedinvestment portfolios andpreviously inaccessible asset classeslike hedge funds, private markets andinfrastructure investments. This is allsupported by a strategic partnership withMercer, a global investment managerthat offers world-class insights andresearch covering more than 30 000 activeglobal strategies. Investment Solutionscan leverage its scale, experience andexpertise to offer IFAs and their clientsrobust investment solutions thatpromise significant diversification andperformance opportunities, aligningwith the group’s strategy to be a trustedpartner for IFAs.Our multimanagementapproach blendsmultiple assetmanagers acrossvarious markets,asset classes andmanagement stylesinto a single portfolioProcess drivenWe take our time to understand ourIFA clients’ practice and their needsbefore putting forward any investmentproposition. This involves an in-depthbook analysis at the inception of therelationship to understand the productmix, what LISP platforms are utilised, therisk profile as well as the investmentneeds of the various clients within theirpractice. Once we have these insights,we can have a far more meaningfulimpact with regards to offeringinvestment solutions and advice thatsuits the needs of the IFA practice andthe ultimate objectives of their clients.This in-depth book analysis is a vital stepto understanding how our DFM canbest work with an IFA to provide andco-create an array of solutions such as:flagship model solutions, custom-builtmodel solutions or pure investmentconsulting services.We are looking to create practiceprosperity by taking away all noncorefunctions from an IFA. Thisincludes reporting (fund fact sheets andcommentary), investment research andbest practice notes. We provide quarterlyinvestment committee/report backmeetings to our clients and equip themwith all the necessary insights and contentto better service their clients and focuspurely on the advice process.Performance imperativesInvesting shouldn’t be one-dimensional.Our multi-management approach blendsmultiple asset managers across variousmarkets, asset classes and managementstyles into a single portfolio. This addeddiversification and risk management aimsto deliver consistent and competitiveperformance over time, to deliver superiorlong-term investment outcomes, withas little stress and anxiety as possiblefor investors.Contact detailsGielie De Swardt• Telephone: 082 956 7090• Email: swardtg@alexforbes.com• Website: www.investmentsolutions.alexforbes.com
2025 DFM GUIDE - FOCUSBLUECHIPDo DFMs just add to costs?Nadir Thokan on the downward trend of DFM fees.The DFM industry has grown at an impressive 20% annualrate over the past three years, reaching an estimatedR500-billion in assets under management. The latest NMGRetail Wealth Survey shows that IFAs are placing greatervalue on their DFM relationships, while ties with asset managersare becoming less relevant. With 73% of IFAs surveyed planningto expand their use of DFMs, this trend is set to continue and gaineven more significance.Two key questions remain: How has the rise of DFMs impacteda client’s Total Investment Charge (TIC)? Are DFMs simply an addedcost, similar to retail multi-managers?With a growing shift towards low-cost passive and rules-basedstrategies, cost efficiency is a priority. DFMs must demonstratevalue beyond fees, including benefits like partnership, successionplanning, operational efficiency and performance. Early data showsthat TICs for DFM-run solutions have been decreasing, especiallyfor the most expensive options. For instance, in the ASISA Multi-Asset High Equity category, the highest TIC has dropped from over2% in 2021 to around 1.75% in 2023 – a 12.5% reduction. Furtherconfirmation of this gradual compression in overall fees even withthe inclusion of a DFM is depicted in the chart below.What is notable from this is that while overall costs acrossthe investment value chain, including DFMs, are decreasing, feesare rising for parts closest to the end client – where clients seethe most value. This highlights a key benefit of DFMs: over time,they enable advisers to justify higher advice fees by allowingthem to focus on adding more value. Looking at the UK, whereDFMs are more established, the trend suggests that total feesacross the value chain will likely continue to decline, even asDFM fees increase.While it’s reassuring that total fees across the value chain,including DFM fees, are trending downward, this doesn’t clearlyshow how DFMs help reduce overall investment managementfees. To assess this, we need to separate total investmentmanagement costs (DFM and asset management fees) fromother expenses and compare how they change with a DFM. Thechart below right illustrates this for the Alexforbes InvestmentSolutions flagship DFM model range, compared to a popular IFAblend of funds within each ASISA category. The IFA fund blendis based on the largest, most invested funds in each category fora typical Category 1 IFA business. This analysis uses the retail feeclass available on major LISP platforms for IFAs.As noted above, a DFM of scale typically utilises the followingfactors to bring more cost-effective solutions to the market for thebenefit of IFAs, as well as the end investor:1. Using scale to negotiate institutional-scale management feeswith underlying asset managers. Typically, DFMs have amassedscale across multiple IFA and wealth management clients. Thisscale enables access to discounted fee classes with underlyingasset managers. Larger DFMs with more significant assets toallocate benefit the most from such negotiations. A DFM with thescale, longevity and track record of Investment Solutions makesa significant impact.2. Offsetting a portion of the DFM fee due to the DFM’s own fundsbeing included in the underlying model solution where such abuilding block fits within the best advice framework.3. While not applicable to the chart above, where a DFM constructsa bespoke fund for an IFA or wealth manager, such funds couldleverage further fee benefits by including underlying managerfee classes, negotiated directly with the asset manager, without arequirement for such a fee class to be available on a LISP platformas the fund or fund solutions will be made available for clientconsumption on the LISP.While this analysis focuses on Investment Solutions by Alexforbes,it is widely accepted that a DFM partner should be able to securelower asset management fees because of their scale. In fact, accessto lower fee classes is consistently ranked among the top fourpriorities for IFAs when choosing a DFM partner (NMG Retail WealthSurvey 2023). While some larger wealth managers negotiate feediscounts with asset managers based on their asset volumes, DFMstypically secure even better rates due to their larger allocations. AsDFMs have grown in prominence, asset managers have adapted byreducing retail distribution costs, benefiting from DFMs as a strong,centralised source of retail flows. Source: NMG Retail Wealth Survey 2023 Source: Investment Solutions by Alexforbes calculations and Morningstar Direct. *InvestmentSolutions flagship strategy relative to ASISA category average net expense ratio.27
