Picture the traditional investment advice model: an adviser building a bespoke 10-fund portfolio for each client on a spreadsheet, cross-referencing fund fact sheets, tracking Regulation 28’s offshore and asset class limits by hand, and doing it all again for the next client, and the next. In today’s unpredictable markets, with an ever-expanding universe of funds to choose from, that model is no longer tenable.
Selecting fund managers requires rigorous due diligence, and constructing portfolios requires a sophisticated investment process and agility. Doing both manually, client by client, while meeting regulatory requirements, is asking the impossible of a single adviser. These challenges create an administrative burden, introduce compliance risk and delay investment decisions. It also becomes operationally impossible for an adviser to respond to market shifts and make changes across every client portfolio at once.
An adviser with 500 clients on their books must obtain switch form signatures from each client to change funds, after which the individual documents are sent to the linked investment service provider to execute and process in the market. By the time the process is complete, another major market event could have occurred. Another alternative is for an adviser to appoint their own investment team and become licensed as a discretionary (Category II) financial services provider, but that is an extremely costly and time-consuming decision.
Alternatively, they could partner with a DFM with a strong team of experienced investment professionals who can select skilled asset managers and combine them in a portfolio that maximises long-term performance. Done well, this kind of partnership translates into three distinct kinds of alpha — investment alpha, practice alpha and advice alpha — that each reinforces the other. The flexibility of a DFM’s active management mandate means underlying managers can capture peripheral alpha by responding to macroeconomic shifts driven by South Africa’s fluctuating exchange rate, or by unlocking opportunities across different asset classes, instruments and stock market prospects. Once a DFM’s institutional machinery is put to work, this becomes a genuine portfolio management advantage that drives better performance.
A DFM’s model portfolios prioritise discipline, not noise, and thus aren’t adjusted often. But once a decision to rebalance is genuinely warranted, a systemic change can be actioned across portfolios in days, something that would take advisers weeks to replicate manually. The platform-based model portfolio system simplifies efficient investment management.
Partnering with a DFM supports agility, portfolio performance and compliance with South Africa’s Conduct of Financial Institutions Bill, which includes “fair” fund selection practices. It also significantly reduces an adviser’s compliance risk and costs, freeing up time to support clients, build new relationships and grow their business.
The adviser remains part of the investment conversation. With the portfolio construction in safe hands, they can coach their clients and focus on advice, while maintaining an active decision-making role in portfolio construction if clients prefer custom portfolios.
A DFM like INN8 Invest is the architect of the entire infrastructure that unlocks the alpha trifecta: investment alpha, from disciplined manager selection and portfolio construction that no single adviser could replicate alone; practice alpha, from the administrative and compliance burden a DFM absorbs, freeing an adviser’s time and operating capacity; and advice alpha, from deeper, more frequent client conversations enabled by freeing up that time.
Ultimately, separating advice from investments enables a more sustainable industry, with specialisation in the right areas and an ecosystem that allows advisers to focus on what benefits the client most — face time and knowing their investments are in safe hands.
For additional information about DFMs, please visit https://inn8.co.za/inn8-invest
Disclaimer:
INN8 Invest is a division of STANLIB Wealth Management (Pty) Ltd, an authorised financial services provider, with licence number 590 under the Financial Advisory and Intermediary Services (FAIS) Act. The information and content of this document are intended to be for information purposes only and should not be construed as advice. Potential investors are advised to seek independent advice from an authorised financial adviser in this regard.