Ask most South African investors what their adviser charges, and a good number won’t be able to tell you, not even the headline percentage. That’s not a criticism of them. Fee structures are usually explained once, in a document signed early in the relationship, and rarely revisited after that.
Layer a DFM or an in-house fund on top of that, and the picture doesn’t get clearer. It gets more confusing. Now there are two, sometimes three, fees stacked on top of each other, and even the investors who could once name their adviser’s percentage have little chance of separating what they pay for advice from what they pay for the product they’ve been advised into.
Key Definitions
Discretionary Fund Manager (DFM)
A third party that constructs and manages a model portfolio on an adviser’s behalf — asset allocation, manager selection, and rebalancing — typically for a fee in the region of 0.2% to 0.3% per annum for the DFM’s own work.
Wrap fund
The packaged product structure through which a DFM delivers its model portfolio to end investors.
TIC / TER (Total Investment Charge / Total Expense Ratio)
The full cost stack an investor actually bears inside a fund or portfolio — management fees, underlying fund costs, and any platform charges combined.
Fee layering
More than one party earning a fee at more than one layer of the same portfolio, without that stacking being clearly visible to the client.
In-house manufactured fund
A Collective Investment Scheme (unit trust) launched and managed by the advice firm itself, registered and classified under an ASISA category, and reported through the same channels as any other retail fund — including Morningstar. Often structured as a fund-of-funds. The firm’s margin sits inside the fund’s own management fee rather than appearing as a separate DFM line item.
Why the Economics of Advice Have Shifted
For most of the last two decades, financial advice in South Africa was priced largely around assets under management — a percentage fee that scaled with portfolio size, regardless of how much planning work that portfolio actually required. As fee transparency has become a bigger differentiator and clients have grown more comfortable questioning percentage-based charges, that model has come under real pressure.
At the same time, the work of constructing and managing a portfolio well hasn’t gotten any cheaper to do. Manager research, asset allocation, rebalancing discipline, and ongoing due diligence are genuine, resource-intensive functions. Somewhere has to pay for them.
The natural consequence is that a growing number of advice firms have moved some or all of that portfolio-construction function in-house, or built commercial relationships with third-party DFMs that include a margin for the firm, not just the DFM. Neither of these is inherently improper. Where it becomes a genuine issue is when the layering isn’t disclosed clearly enough for a client to know what they’re actually paying, and to whom.
Two Distinct Practices Worth Separating
“DFM fee layering” gets used loosely to describe two structurally different practices. They deserve to be separated, because the incentives they create aren’t identical.
Marking Up a Third-Party DFM Fee
In the more straightforward version, a firm outsources portfolio construction to a genuine third-party DFM, typically at a wholesale cost in the region of 0.2% to 0.3% per annum for the DFM’s own management fee, and then adds its own margin on top before passing a single blended number to the client. The client may never see the wholesale cost. They see one number, and have no way of knowing how much of it is the DFM’s work and how much is the adviser firm’s markup.
Launching an In-House Fund
A second, structurally different practice is when the advice firm manufactures the fund itself: launching and managing a Collective Investment Scheme, registered and classified under an ASISA category, and reported through the same channels as any other retail fund, including Morningstar. These are often structured as fund-of-funds. Here, the firm’s margin sits inside the fund’s own management fee rather than appearing as a separate DFM line item, and because the fund is technically a product rather than a service, the firm may also charge a separate AUM-based advice fee on top of it. Two revenue streams from the same client assets, only one of which is typically labelled as a fee.
The Fair Counter-Argument
None of this means charging for portfolio construction is improper. Manager due diligence, asset allocation, and ongoing rebalancing are genuine, skilled work, and a firm that does this well is adding real value beyond the advice conversation itself. Building the in-house capability to do this, rather than simply outsourcing it, is a legitimate business decision, and clients of well-run in-house solutions can get good outcomes.
The argument here isn’t that firms shouldn’t charge for this work. It’s that the charging often isn’t disclosed clearly enough for a client to separate what they pay for advice from what they pay for the product they’ve been advised into. That distinction matters, because the second number is usually the one doing more damage to long-term returns.
Three Models, Side by Side
Stripped of the specifics, most portfolios sit in one of three structures.
| Model | Who Earns What | Transparency |
|---|---|---|
| DFM at cost, passed through | The DFM only, at the manufacturing layer. The advice firm’s fee is separate and visible. | Full — the underlying cost is disclosed on its own line |
| DFM with an undisclosed margin | The DFM, plus the advice firm, layered into one blended figure | Partial — the markup is usually invisible on the client statement |
| In-house fund manufacturing | The advice firm, at both the manufacturing layer and (often) the advice layer | Depends entirely on disclosure quality — the structure itself doesn’t guarantee either way |
Risk & Structural Considerations
Where the layering isn’t disclosed clearly, a few structural risks follow. An adviser whose firm also manufactures the fund has less incentive to move a client out of it, even where an independent alternative would perform better, because the fund’s continued growth benefits the firm twice over. Fund selection can quietly stop being purely about client outcomes and start reflecting, at least partly, the economics of where the assets sit.
South African advisers are required under the FAIS General Code of Conduct to disclose all forms of remuneration connected to a client relationship. The requirement to disclose isn’t the same as disclosure that’s actually legible. A fee schedule that’s technically complete but genuinely difficult to parse achieves compliance without achieving transparency, and most clients don’t have the time or inclination to reconstruct a fee stack from a factsheet.
What to Ask, and What It’s Worth
The Rand impact of a small, undisclosed differential is larger than most people assume, because it compounds against the same base as the portfolio’s growth. As an illustration only, on a R20 million portfolio growing at an assumed 9% per annum nominal, a 0.75 percentage point differential at the manufacturing layer, whether from a DFM markup or an in-house fund’s built-in margin, compounds to a meaningful gap over time.
| Fee passed through at cost | ~0.75 percentage point differential | |
|---|---|---|
| Starting capital | R20,000,000 | R20,000,000 |
| Illustrative gross growth assumption | 9.00% p.a. | 9.00% p.a. |
| Effective net growth | 9.00% p.a. | 8.25% p.a. |
| Value after 15 years (illustrative) | ≈R72.9 million | ≈R65.7 million |
| Difference | ≈R7.2 million | |
This is a modelling illustration, not a prediction, and it assumes no other differences between the two scenarios. The point isn’t the precise number. It’s that a fee differential too small to notice on a monthly statement is not too small to matter over a multi-year horizon.
In practice, that means asking your adviser a short, specific set of questions:
- What does the DFM or fund charge at the manufacturing layer, in Rand or percentage terms, separate from any advice fee?
- Does your firm manufacture, wholly or partly own, or earn a margin on any of the funds it recommends to me?
- Is the DFM relationship exclusive, or can and does the firm use other DFMs where appropriate?
- Can you show the layering broken out on my statement, rather than a single blended number?
This is the expanded version of a question worth asking any adviser before you appoint one — it’s one of the checklist items in our guide to choosing a financial advisor in South Africa.
Frequently Asked Questions
What is a DFM and what does it actually cost?
A discretionary fund manager (DFM) is a third party that constructs and manages a model portfolio on an adviser's behalf, handling asset allocation, manager selection, and rebalancing. The DFM's own fee for this work is typically in the region of 0.2% to 0.3% per annum, separate from any advice fee charged on top.
Why do some advisers mark up DFM fees?
Planning fees alone have come under pressure as clients grow more comfortable questioning percentage-based charges, and portfolio management has become a larger share of where advice firms earn their margin. Marking up a DFM fee is one way firms recover that margin, though it's rarely disclosed as a separate line item.
What's the difference between a DFM fee markup and an in-house fund?
A DFM markup adds a margin on top of a genuine third-party DFM's cost. An in-house fund is a unit trust the advice firm manufactures and manages itself, where the margin sits inside the fund's own management fee, and a separate AUM-based advice fee may be charged on top of that.
Is it reasonable for an adviser to charge for using a DFM at all?
Yes. Portfolio construction, manager due diligence, and rebalancing are genuine, skilled work that deserves payment. The issue isn't the charging itself, but whether it's disclosed clearly enough for a client to separate the cost of advice from the cost of the product they've been advised into.
How do I find out what I'm actually paying at each layer of my portfolio?
Ask your adviser directly for the DFM or fund management cost, separate from the advice fee, and ask whether their firm manufactures or earns a margin on any recommended funds. A straightforward answer, broken out clearly, is a reasonable baseline to expect.
The Right to Know What You’re Paying, and to Whom
Full disclosure of where every basis point of a portfolio’s cost goes isn’t a courtesy your adviser extends to a curious client. It’s a reasonable baseline, and if your current relationship makes that hard to establish, that’s worth treating as information in itself.
In practice, this means asking plainly for the underlying DFM or fund management cost, separate from any advice fee, and expecting a clear answer rather than a single blended number. It also means asking whether your adviser’s firm has any ownership stake in the products it recommends, not because that ownership is automatically disqualifying, but because it changes what independence actually means in that relationship.
At Henceforward, we use DFMs, including Graviton, on a non-exclusive basis, and we pass the underlying fee through to clients at cost, with no margin added at that layer. We don’t manufacture our own funds. That’s not a claim to moral high ground. It’s simply what a disclosure-consistent structure looks like in practice, and it’s a reasonable standard to expect from any firm managing a portfolio at the scale our family office clients typically hold.
If you’re not sure what you’re actually paying at each layer of your portfolio — the advice fee, the DFM or fund management fee, and anything layered on top — we’re happy to break it down line by line.
This article is for informational purposes only and does not constitute financial advice.
Henceforward (Pty) Limited is an authorised representative of Graviton Wealth Management
(FSP 8772). References to market events and historical performance are for illustrative
purposes only and are not indicative of future results. Projections and illustrations are
for discussion purposes only. Consult a qualified financial advisor before making any
investment decisions.
Carl-Peter has been in the financial services industry since 2003 and launched Henceforward with Steven Hall in 2021. He focuses primarily on investment strategy and portfolio construction. Henceforward is a fee-only, flat-fee firm — no commissions, no product incentives. CP holds the CFP® designation and practises as an authorised representative under Graviton Wealth Management (FSP 8772).