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ARTICLE BY

  • Sarmishtha Haribha
  • Lead Specialist at Retail Investment Proposition
  • Liberty

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Tailored investment advice and fund management as part of the financial adviser’s toolkit is becoming increasingly popular globally, and South Africa is fast adopting this evolving trend.

Bespoke solution

Known as Discretionary Fund Managers (DFMs), these investment managers work with advisers and can tailor specific solutions to particular client situations so as to extract the most beneficial outcomes for these clients.

Historically, this kind of direct money management has been of the greatest value to high-net-worth individuals, who are often seeking more bespoke solutions to create opportunities for their wealth. The 2023 Africa Wealth Report puts the number of dollar millionaires locally at roughly over 30 000, so having the ability to offer active and individual money management solutions is indeed something worth knowing about and exploring.

The last few years have also seen an expanding client and adviser base interested in the merits of a more tailored range of actively managed solutions and the case for broadening this type of investment exposure to mid-to-affluent clients is indeed compelling. Financial advisers are specialists in their clients’ lifestyle requirements and help them manage risk, savings and other family related financial considerations, while offering investment solutions through established fund managers as a key part of their value proposition. But having a specific manager look after a client’s money or partnering broadly with a manager offering a specific set of investment outcomes is becoming a way of offering targeted solutions for individual wealth goals.

Everyone’s a winner 

For some advisers, bringing a third party into an established client relationship might seem daunting, but when approached as a partnership in the right manner, this relationship can truly unlock value and produce positive results.

A recent study conducted by Rathbones among a group of 100 advisers in the UK found that 72% of adopting advisers saw an uptick in client portfolio performance, while 63% cited improvements in their client contact after engaging with a DFM. The same study found a 66% improvement to the client’s risk/return profile when partnered with a DFM.

Making the judgement as to whether a DFM will be the right fit for a client is among the most important considerations for an adviser when deciding whether to utilise this investment approach. This should also be viewed in the overall context of the client relationship and objectives, and as these previous figures show, for the right client, this can be a real advantage to the adviser.

It’s easy for established advisers to talk about life stage investment goals through an already established product that they are familiar with, in the sense of overall financial performance and parameters. But here’s the challenge: Do you have a client who wants something outside of the box in terms of what their investments can offer, such as having their funds managed actively or being open to a broader set of opportunities than the mainstream market might offer?

This is the real value of a discretionary fund manager being offered to a client. And while many believe this approach is most suited to the high-net-worth space exclusively, there are many DFM solutions that cater for the broader mid-market segment of clients who also have very individual and specific financial aims. DFMs can offer them specific portfolios and exposure, as well as a broader range of opportunities for their money which can also be managed in a more personal way.

Liberty has partnered with INN8 Invest to offer a DFM-based range of solutions to our clients, and in some instances offer advisers the opportunity to engage and partner with DFM teams to tailor solutions in a way that suits their particular practice and client segment. This creates a multiplier effect in which the power of an adviser, combined with individual money management offerings create a wealth of possibilities for the client.

As an adviser, ensuring that a client’s wealth journey is taken care of through the best possible management talent available makes a lot of sense. This is why partnering with a DFM can help build an adviser’s practice into a more complete wealth management operation by emphasising the full value of individual financial solutions.

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