DISCRETIONARY INVESTMENT MANAGEMENT

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1 DISCRETIONARY INVESTMENT MANAGEMENT

2 WHAT?!&!!! Investment Management, CAT IIs DFMs DIMs Investment Management is described as The professional management of client funds in and across asset classes (shares, bonds, real estate, etc.) in order to meet specified investment goals for the benefit of the investors. And Discretionary Investment Management is well Investment Management with BULK discretion Fastest growing sector

3 HOW?! #1 Simply - The Investment universe went mad became more complex and complicated as far as products and choices are concerned to consumers and their advisors. o Thousands of Unit Trusts, Onshore and offshore, Blended or Building Block, Single & Multi Manager, Share Portfolios & Unit Trusts, On balance sheet & off balance sheet, Currency hedged or not, On platform or direct, Rebalanced versus drift, Active or passive or Smart Beta, Style and factors, Asset Allocation (tactical versus strategic) Advisors have to (or are expected to) keep up, or some new upstart will ask their clients the questions, and the client will then wonder why his advisor has not spoken to him about these new fangled product or choice.

4 HOW?! #2 Legislation became more rigid, for good reason all things considered, demanding more and more of advisors when o doing the clients financial planning, and then also o when structuring their clients portfolios (Research, due diligence, monitoring, adjusting, reviewing ). o Investment advice risk! for the KI, FSP, and Rep

5 HOW?! #3 Then the information / internet / smart phone / app age arrived leading to consumerism at its best, where clients are permanently online gaining (little bits of) knowledge, and then speaking to their advisors and asking questions, making proposals and suggestions

6 HOW?! #4 Compliance has added to the advisors workload, already high, and stretching them almost to their maximum time limits, before even adding on the required annual reviews for each client (and their investment portfolio).

7 HOW?! So how did (or does) the advisor, or the FSP cope with the additional regulations, detailed compliance, widening investment horizons, growing consumerism, etc. enter the Discretionary Investment Manager [DIM]. Investment Management is described as The professional management of client funds in and across asset classes (shares, bonds, real estate, etc.) in order to meet specified investment goals for the benefit of the investors. And Discretionary Investment Management is well Investment Management with discretion

8 Internal Investment Manager A number of existing CAT I FSPs set up a DIM area (CAT II license) within their FSP and hired skills dedicated to the Investment Management of the clients of their Advisors. Now their Advisors could concentrate on the advice process (Financial Needs Analysis, Pre and Post Retirement Planning, Estate planning and liquidity, Risk Profiling etc.) whilst the DIM area could concentrate on the Investment Management process of Asset Allocation (strategic & tactical), Manager & Fund due diligence, selection, blending and then monitoring, adjusting, & reporting

9 In-house Investment Management Similarly, a number of mutli branched Advisory Firms with CAT I FSPs across SA saw the same challenges and also saw the potential for Investment Advice risk because of the geographic spread and differing skill sets of their Advisors, and as such also started up dedicated & separate DIM Companies within their Groups, to offer Investment Management services to all their Groups Advisors clients.

10 Retail DIMs Then enter the Retail DIM seeing all of the above challenges and recognising that a number of CAT I FSPs may not have the infrastructure to set up their own DIMS, these players set up independent DIMs to provide Investment Management services to external independent CAT I FSPs and their clients.

11 The DIM Route But once a CAT I FSP decides to enter this DIM arena they can choose to skill up in-house and apply for licensing themselves, or they could contract with an existing DIM. There is no question that many CAT I, Advisors, and FSPs have these skills already. This is about time management to do all the ongoing research, management, & monitoring that we spoke about, and then the immense work of rebalancing individually - as the CAT 1 does not have discretion to execute bulk transactions.

12 CAT I Status quo CAT I FSPs did and can of course construct their own researched solutions, offered to clients as their house view, and retain the skills necessary to manage these house views, Put in place skills and resources & infrastructure to; make asset allocation calls and maintain a robust asset allocation and manager / fund monitoring process? rebalance my clients investments to ensure they remain on track to achieve their investment goals in a timeous and efficient manner?

13 The DIM Partnership option If going the DIM partner route, then the CAT I FSP HAS TO perform their own due diligence on the DIM, it must documented & noted, key questions must be asked and answered. Ask for references, check the personality fit, understand the process. o Financial strength and resources business characteristics, Quality of people, Client on-boarding, Performance, Ease of doing business, Tailoring capabilities, Investment expertise and flexibility, Research capabilities, Fees This partnership has to add value to the client and not just cost. WHY because the FSB may well ask

14 DIM Regulation Now surely all the additional attention Discretionary Investment Management is getting can and will only be good for clients - true TCF in action, but along with the good comes the challenges of standards, minimum criteria, education, qualification and all the other good stuff that is inevitable in a (relatively) new growing sector. Enter the FSB the Regulator the Enforcer to ensure that CAT IIs are genuine, value added, services - in the clients best interest, and rightfully so. Expect some changes coming down the line to better regulate this growing sector, which managed and implemented properly can only improve the clients experience, and enable the Advisor to focus on what they do best!

15 The FIA and DIMs The FIA is always striving to accommodate the changing face of both the advice discipline and our diverse membership. They recently established a dedicated committee for Investment Managers FSPs that conduct business under a Category II license. o Representatives from In house, Retail, in License, ex AMs etc The objective of this committee is to engage with the regulator in determining legislation & setting professional standards, and introducing a Good Practice Guide, and to generally be the voice for DIMs in SA. In this regard a number of papers, presentation, and submissions have been made to the FSB, followed up with a number of face to face meetings as well and of course roadshows such as these to inform the FIA members.

16 Summary & Fine Print A DFM offers a professional investment service by providing expertise in the selection and monitoring of specifically designed portfolios and their performance. A DFM will work with you to understand your book of clients individual circumstances and investment needs and will make all the complex investment decisions, based on their tolerance for risk, return profile needs and time horizon associated with their investment needs. Each DFM will have their own in-house style when creating portfolios and will use all of the financial instruments they have at their disposal, to achieve the desired asset allocation and expected results.

17 Summary & Fine print Discretionary investment management offers a number of benefits to advisors & clients. It frees them from the burden of making day-to-day investment decisions, which can arguably be better made by a qualified portfolio manager who is attuned to the vagaries of the market. Delegating the investing process to a competent manager leaves the advisor free to focus on other things that matter to them and their clients, such as their clients Financial Planning Discretionary investment management may also ensure that the client has access to better investment opportunities through the portfolio manager. The client may also receive better prices due to their scale. or clients in discretionary accounts, portfolio managers can act on available information quickly and efficiently, selling the position out of all their accounts in a single, cost-effective transaction.

18 2018 GOAL Strength in Knowledge

19 THANK YOU A big thank you for your interest and support!