How to choose a discretionary fund manager

Skill, scalability and simplicity. Those are the three key features to look for in a discretionary fund manager (DFM), said Leigh Köhler, head of Investment Solutions at Glacier, in his address to the inaugural Glacier Invest Summit in July 2019. More than 400 financial intermediaries attended the events and were exposed to a number of issues and trends that affect their profession.

The local landscape

The regulatory environment in South Africa has spurred a growth in DFM numbers. Legislation such as the Retail Distribution Review (RDR) has forced intermediaries to manage their practices very differently in recent years, and to be vigilant about partnering with the best DFM for them.

More than 40 DFMs manage ±R165 billion worth of assets in South Africa. The top four account for roughly 70% of the assets in this industry and Glacier Invest accounts for 22–25% of the entire market share with assets under management (AUM) in excess of R40 billion.

Leigh says in the DFM space, the perfect investment ecosystem for positive outcomes depends on three factors:

  1. Skill, in other words, the capacity to build and select
  2. Scale
  3. Simplicity for the intermediary as well as the client.

R2,3 trillion worth of assets in the UK

In the UK, R2,3 trillion worth of assets are managed on a DFM basis. Of the 110 players in the industry, just three are majors. Leigh observes that the big players in the UK hold the lion’s share of AUM by combining the three critical elements listed above to achieve success.

Currently, 88% of all advised assets are held within managed solutions such as model portfolios, multi-asset funds and bespoke discretionary portfolios. All managed solutions total R4,8 trillion in assets. Of this, roughly half are managed on a DFM basis.

Why are skill, scalability and simplicity important?

Leigh unpacks the three components and why they’re important:

Skill – Allows for greater breadth and depth of both market and asset manager research, as well as personalised portfolio manager support and tailored investment solutions for financial planners.

‘The size and experience of Glacier Invest’s investment team is a crucial differentiator in the SA DFM market – it ensures the financial planners who’ve partnered with us can be secure in the knowledge that they’ve partnered with the best.’

Scalability – With the largest amount of AUM in the DFM industry, our scale allows us to invest in cutting-edge investment technology, such as Glacier Invest Smart Portfolio and Charles River Investment Management Solutions.

Smart Portfolio is Glacier Invest’s digital portfolio management enabler that we provide to all our clients. It improves overall investment outcomes and enables financial planners to become better investment professionals. The Charles River system ensures custom design and management of all our client solutions.

Our scalability also allows us to negotiate better fee deals with large and small asset managers. We’ve secured institutional fee classes for our clients that can only be accessed via Glacier Invest. This means our clients can access the very best asset managers at the lowest costs in the industry.

Simplicity – The back end may be complex and the systems that connect our various elements may be intricate, but for our interface and interactions with intermediaries, we’re committed to seamless, elegant simplicity.

Our solutions are designed to make it easier for financial planners to have the tough investment conversations with their clients. Financial planners can access Glacier Invest in four ways:

  1. Glacier Invest Wrap Funds (model portfolios)
  2. Glacier Invest Customised Solutions (customised reporting)
  3. Glacier Invest Implemented Consulting (tailored portfolio construction)
  4. Glacier Invest CAT II Consulting.

Competing with the best DFMs globally

‘We’re proud that our homegrown DFM and consulting capability can compete with the best globally,’ Leigh says. ‘We have all of the elements for successful outcomes for our clients, and hundreds of our supporting intermediaries agree.

‘With a solid track record and the biggest investment research team in the country, Glacier Invest has the critical components required to be the DFM partner of choice.’