Financial planning · South Africa
What Does a Discretionary Fund Manager Add to Your Portfolio?
A discretionary fund manager, or DFM, makes investment decisions within an agreed mandate without asking you to approve every trade. It can provide portfolio construction, manager selection and rebalancing. Whether that additional service is worthwhile depends on the decisions delegated, the total cost, the treatment of your circumstances and the responsibilities that remain with your adviser. Appointing another manager does not itself establish a better investment outcome.
The most useful opening question is: which decision will this arrangement improve, and who currently makes it? An adviser struggling to administer many portfolios has a business reason to appoint a DFM. That may benefit clients through more consistent implementation, but the connection needs to be shown. It cannot be inferred from the convenience of outsourcing.
In this article
What are you actually appointing?
A DFM can manage a model portfolio implemented through an investment platform, a portfolio packaged as a unit trust, or a bespoke arrangement. Those structures differ in legal ownership, transactions, available restrictions and charges. A model allocation shown on a factsheet is not necessarily a separate fund that you own units in.
Ask for the names of the legal entities providing advice, discretionary management, administration and the underlying funds. Several roles can sit in one group. Conversely, several company names can appear without each supplying a distinct benefit.
The ASISA Smart About Money DFM explanation describes model portfolios and unitised arrangements, the possibility of lower underlying fund charges and related-party conflicts. Those are useful starting distinctions. The household still needs the particular mandate and its own combined cost statement.
Discretion has a boundary
The discretionary FSP code requires a mandate before the service starts. It must establish full or limited discretion, objectives and investment or jurisdiction restrictions, remuneration and relevant incentives, and asset-registration arrangements. The regulator approves the mandate specimen; that is not approval of the portfolio's suitability for every person who signs it. The code also requires information about the client's circumstances before the mandate, and periodic reporting, with an electronic-access exception. Code for discretionary FSPs, Chapter II, sections 4–6.
A signature authorising trades has consequences. The point of discretion is that the manager can act within the mandate without returning for a switch signature each time. If you expect to approve every change, establish how that expectation fits the proposed service before signing. “Please call me first” in a conversation may not describe the authority in the document.
Check the provider and permitted activities through the FSCA's authorised-provider search. A valid licence is a necessary status check, not a performance endorsement. A group's familiar brand does not identify which licensed entity has the discretion.
Who does what when circumstances change?
Consider a household that will need R300,000 for a property transfer. Its investment statement says “moderate model”. That label does not tell the manager the payment date, whether there is other cash, or whether the adviser has already arranged funding elsewhere.
The following responsibility record can be completed from the proposal. It is an illustrative division of work, not a description of every DFM business:
| Decision or task | Responsible party to identify | Evidence that the task is covered |
|---|---|---|
| Translate household obligations into an investment objective | Adviser, with client information | Advice record and agreed liquidity requirement |
| Select and change allocations within the mandate | Licensed discretionary manager | Mandate, portfolio limits and change record |
| Execute instructions and maintain account records | Platform or administrator under its arrangement | Transaction confirmations and statements |
| Select securities inside an underlying fund | That fund's manager | Fund mandate and disclosures |
| Check whether a new household need changes the arrangement | Named adviser or agreed service provider | Review trigger, responsible person and communication route |
The practical failure is a gap between the rows. The household tells the adviser about the property purchase, the adviser assumes the platform cash balance is sufficient, and the DFM continues to rebalance according to its model. Each party may perform its normal task while the actual payment remains unplanned.
A workable proposal therefore explains how a client-specific constraint reaches the person who can act on it, how acceptance is confirmed and what happens when a model cannot accommodate it. A central model may be well run and still be the wrong implementation for a particular restriction. The answer may be a separate cash provision, a different mandate or another arrangement; those require the household facts.
What fees should I compare before appointing a DFM?
Compare the combined advice, platform, underlying investment and DFM charges, including VAT where applicable. Check separately for initial, transaction and performance charges. Lower underlying fund charges offset the DFM fee only to the extent of the saving actually available to you. Compare the same balance, period and fee conventions, and avoid counting embedded charges twice.
Consider R3 million and the following invented annual charges. All figures are VAT-inclusive where applicable, applied to an unchanged balance for arithmetic clarity. There are no initial charges, trading costs or performance fees in this example. Actual proposals need those items checked separately.
| Annual charge | Existing arrangement | Proposed DFM arrangement |
|---|---|---|
| Advice | 0.60% / R18,000 | 0.60% / R18,000 |
| Platform | 0.20% / R6,000 | 0.20% / R6,000 |
| Underlying funds | 0.80% / R24,000 | 0.65% / R19,500 |
| DFM | R0 | 0.25% / R7,500 |
| Total | 1.60% / R48,000 | 1.70% / R51,000 |
The R4,500 underlying saving covers part of the R7,500 DFM fee. The household pays R3,000 more each year on this unchanged balance. That is the additional service's price in this example. It does not prove poor value, but “the wholesale discount covers our fee” would be inaccurate.
If the underlying charge instead fell from 0.80% to 0.50%, the same DFM fee would produce a total of 1.55%, or R46,500. The proposed arrangement would then cost R1,500 less. Neither outcome can be assumed without the actual fee schedule. The fee example above shows both cases and the break-even reduction of 0.25 percentage points.
This is a cost comparison, with no return advantage attributed to either arrangement. Charges based on changing assets will produce different rand totals in practice. Compare the same dates, balances, fund exposures and fee conventions; check that embedded charges have not been added twice.
What if the DFM uses funds from its own group?
Related-party funds can create another source of revenue alongside the DFM charge. That does not by itself establish misconduct or make the fund unsuitable. It does make the selection process and the full economic relationship relevant.
A primary example is the disclosure in Interactive's Moderate Core model factsheet: fees in proprietary funds are additional to the model wrap fee. The factsheet's internal reporting date is December 2025; it is cited here for that disclosure, not for current performance or a recommendation to use the portfolio.
Ask which related funds are eligible, whether an outside fund can replace one, who receives each charge and what evidence supports the selection. A statement that “all managers are independently researched” does not answer whether related funds receive different treatment. Equally, selecting an outside fund does not guarantee a better result.
The proposal should make the conflict understandable before the investor must infer it from several documents. Compare total charges after any rebates and clarify who receives the rebate. A discount retained elsewhere in the chain is not automatically a reduction in the client's cost.
Who owns the tax consequences of a model change?
In an individually held taxable model portfolio, selling a fund can realise a capital gain or loss for the investor. A manager changing the same model for many clients may encounter different tax positions: one investor bought recently, another has a large historic gain, and a third has usable losses. The same trade need not have the same tax consequence.
That differs from a retirement-fund account or a TFSA, and from transactions occurring within a unitised fund. Do not assume that the word “rebalance” identifies whose taxable disposal occurs. The legal structure matters. ASISA's DFM tax discussion.
Suppose one investor asks to limit realised gains this tax year. The important question is not whether the DFM says it is “tax aware”. It is whether the account can depart from the standard model, who calculates and monitors the restriction, what information about other disposals is required, and whether accepting the restriction creates a materially different portfolio. A restriction can protect cash needed for tax while also leaving an unwanted exposure in place.
Tax is one cost of changing a holding, not a universal veto. Nor should a manager promise a tax saving based only on the account it sees when the investor has other gains elsewhere. The Library's capital-gains treatment addresses the tax calculation; this article concerns decision responsibility.
What evidence would justify the added service?
Some benefits can be evaluated without claiming future outperformance. Examples include documented mandate compliance, consistent implementation across accounts, a clear record of why managers changed, reliable cash instructions and reports that reconcile holdings, transactions and charges.
An investor can ask for an anonymised example of a portfolio decision and its reasoning. It should show the objective, alternatives considered, relevant costs and how the change fitted the mandate. A favourable return chart alone cannot show whether the manager solved the problem for which it was appointed.
Performance evidence still matters, but it needs a relevant comparator, the appropriate risk context and the fees actually deducted. A model record may differ from an individual's experience because of entry date, cash flows, platform implementation and charges. Ask what the record represents before treating it as the result that your own account would have received.
There is also a credible case for leaving the current structure alone. A household with a suitable, straightforward arrangement may already have the required portfolio management inside an existing fund. Adding another selection layer needs a distinct job. Conversely, multiple legacy accounts, unmanaged drift or execution delays may expose a real problem that a documented discretionary process could address. Those facts establish the question to investigate, not an automatic appointment decision.
The documents that settle the comparison
ClearGauge's judgement is that a DFM proposal becomes assessable when three documents agree: the household advice record, the discretionary mandate and the combined fee statement. If one says personalised cash management, another permits only a standard model and the third excludes an additional charge, the inconsistency needs resolution.
Keep a named contact for household changes and a written description of what happens on termination. Revoking discretion, changing adviser and moving assets are different actions; the account terms determine which is required. A planned exit should not depend on guessing which entity holds the instruction authority.
This article has not assessed a manager, portfolio or individual mandate for you. It explains the questions needed to evaluate the additional service. For the broader cost comparison, read what financial advice costs, including charges that sit outside the adviser's headline fee.
Does ClearGauge provide discretionary fund management?
ClearGauge provides non-discretionary investment and financial planning advice. You retain control of your investment decisions. ClearGauge does not provide discretionary fund management or hold clients' investment funds. Read about our Share Portfolio Guidance and professional safeguards before agreeing an engagement.
Sources and assumptions
Reviewed 6 September 2026. The legal source is the discretionary FSP code, with the cited consolidation recording the 2003 and 2007 amendments; the original is Government Gazette 25299. FSCA supplies the verification route. ASISA supplies industry education, and the named provider supplies its own fee disclosure. Proposed regulatory reforms are not presented as enacted duties. All fee examples are invented and exclude investment movement; they are neither market averages nor ClearGauge tariffs.