Partnering with a DFM: 6 Myths Busted!

When engaging with advisors, we regularly encounter the following myths regarding partnering with a DFM – and we would like to set the record straight.

Myth 1: DFM services are too expensive

If you value your time in servicing current clients and building new client relationships, you need to consider handing over the investment and operational aspects of researching and running investment portfolios to a trustworthy partner. The DFM fee will be well-spent since it will free up your time to grow your business and free yourself from worries regarding investment performance and reporting to clients.

Compare the DFM’s fee structure to those of other DFM’s.  Consider whether the DFM can use cost-effective structures to decrease overall costs, without sacrificing returns. Is the DFM proposition value for money in terms of the level and variety of services you will receive on an ongoing basis?

Myth 2: It’s easy to select great fund managers

To select great fund managers, you need:

  • Time to engage with fund managers (local and international) on a regular basis.
  • Investment knowledge to ask insightful questions and evaluate answers from portfolio managers.
  • Access to costly systems to interrogate the quantitative characteristics of fund manager portfolios, and expertise to decipher whether a fund is an alpha-generator or not.
  • A scientific scoring system to evaluate fund managers on a like-for-like basis.

Myth 3: Anybody can construct optimal investment portfolios

To construct optimal investment portfolios, you need:

  • Time to research universes of passive, smart beta and active (established and boutique) fund management strategies.
  • Time and expertise to whittle down the universes to short-lists of highly rated funds.
  • Investment knowledge to tease out the correlations (explicit and implicit) between funds.
  • Expertise in constructing portfolios of uncorrelated funds that will weather most market storms.

Myth 4: The operational side of the business is a breeze

Are you satisfied that:

  • Your portfolios are FAIS compliant.
  • You have a dedicated operational team who works closely with the LISP platforms.
  • All trades and switches are performed accurately and efficiently.
  • Monthly fund fact sheets are produced in a timely manner.

Myth 5: Advisors have enough time for investments and financial planning

How many of your day-to day activities are geared towards:

  • Building new client relationships.
  • Nurturing existing client relationships.
  • Spending enough time with clients to design optimal client-centric financial plans.
  • Providing excellent client service to aid in generating referrals.

If most of your time is spent on investment research – you may need to free up your time to focus on what matters most to your clients and business.

Myth 6: All DFM’s offer the same services

All DFM’s should provide access to investment research, portfolio construction, operational capability, reporting and systems. Enquire whether the DFM also offers the following:

  • No minimum asset size.
  • Cradle to grave growth proposition.
  • Access to global research sources.
  • Access to a fund manager research digital portal.
  • Flexibility of portfolio construction.
  • Forex capabilities and opportunity to enhance revenue stream.
  • Access to securities portfolios.
  • CPD-accredited meetings.
  • Access to decision support systems.

Now that the 6 myths have been busted, is it not time for you to consider partnering with a DFM?

Model portfolio returns are net of Total Investment Charge (TIC). Returns prior to launch of the portfolio are simulated based on the returns of the underlying funds at their initial weightings. Post launch returns are simulated based on the current weightings of the initial investment on the selected Platform, where applicable. Longest available class returns are used and where applicable simulated returns are stitched to these returns to simulate a longer period.

The information and opinions contained in this document are recorded and expressed in good faith and in reliance on sources believed to be credible. No representation, warranty, undertaking or guarantee of whatever nature is given on the accuracy and/or completeness of such information or the correctness of such opinions. Portfolio Analytics (Pty) Ltd (“Analytics”) will have no liability of whatever nature and however arising in respect of any claim, damages, loss or expenses suffered directly or indirectly by the investor or the investor’s financial advisor acting on the information contained in this document. Furthermore, Analytics does not act as the investor’s financial advisor, they have not conducted a financial needs analysis and will rely on the needs analysis conducted by the investor’s financial advisor. Analytics recommends that investors and financial advisors take particular care to consider whether any information contained in this document is appropriate given the investor’s objectives, financial situation and particular needs in view of the fact that there may be limitations on the appropriateness of any advice provided. No guarantee of investment performance or capital protection should be inferred from any of the information contained in this document. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to future performance.

Source: Performance sourced from Morningstar, for a lump sum using NAV-NAV prices with income distributions reinvested.

FSP: Portfolio Analytics (Pty) Ltd is an authorised Financial Services Provider FAIS License No. 631

Tel: (021) 936 9500; Website: www.analytics.co.za

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