The role of Discretionary Fund Managers (DFMs) in the South African financial sector is undergoing significant transformation as independent financial advisors (IFAs) increasingly rely on these partners to streamline their operations. In a recent interview with CNBC, Andrew Cormack, head of IFA and global distribution at Innate Invest, highlighted the evolving partnership between DFMs and IFAs, and the crucial adaptations required to remain relevant in a rapidly changing landscape. According to research by NMG, a noteworthy 67% of South African advisors operating outside large financial network structures are currently utilizing DFMs. Moreover, a staggering 80% of IFAs below the age of 40 anticipate leveraging DFMs within the next three years. Cormack emphasized the distinct shift from IFAs executing all client-related activities independently to collaborating closely with DFMs. "The DFM industry has evolved over the last 15 to 20 years to support IFAs by assuming the investment management function, enabling advisors to focus on delivering strategic advice," Cormack stated. The evolving demographic landscape poses both challenges and opportunities for DFMs. With an estimated $90 trillion expected to transition to younger generations like millennials and Gen Z over the next two decades, DFMs are tasked with meeting the unique demands of these younger, tech-savvy investors. Cormack candidly shared, "Millennials are setting high expectations for immediate access to information and responsive client engagement." To thrive amidst these trends, DFMs must embrace technology and offer innovative, multi-platform services to advisors and clients alike. Key to the future relevance of DFMs, according to Cormack, is the shift beyond solely focusing on performance and fees. He proposes a holistic approach, suggesting that IFAs should evaluate the additional value-added services a DFM provides, such as client engagement solutions and robust reporting tools. "Our job as a DFM is to assist advisors by providing them with detailed insights and reliable management to enhance the client experience," he explained. Despite the burgeoning demand for DFM services, the South African market remains under intense competition, with over 200 DFMs currently operating. Cormack offers insights into the potential for consolidation within the sector, highlighting the advantages larger entities possess in leveraging scale and resources to negotiate more favorable pricing. "We expect to see mergers as some larger firms choose to acquire smaller, attractive operations," he noted. Cormack also pointed to the disparity in regulations and standards which continue to challenge DFMs. Without standardized performance reporting metrics, advisors face difficulty in making informed comparisons between managers. Innate Invest has been a proponent for more transparent industry standards. "There is a pressing need for clearer performance metrics to aid advisors in making data-driven decisions when choosing a DFM partner," Cormack argued. In summary, the role of DFMs in South Africa’s investment landscape is poised to expand and evolve significantly. They must continue to innovate, manage technological advancements, and meet the burgeoning expectations of both advisors and the younger generations set to inherit immense wealth. Cormack's insights deliver a clarion call to the industry: embrace change, enhance service offerings, and forge strong, value-rich partnerships with advisors. As DFMs adapt, they will not only survive but thrive in an increasingly complex market environment.