FSA to issue new guidance on post-RDR DFM client agreements
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The FSA has confirmed to Investment Adviser it will formally address the issue of DFM client arrangements in an upcoming guidance paper, as some DFMs have said they do not have direct agreements in place when gathering assets from clients through adviser platforms.
The FSA is heaping further pressure on discretionary fund managers (DFMs) to ensure they have a direct relationship with advisers’ clients before the Retail Distribution Review.
DFMs have experienced a boom in advisers outsourcing clients’ investments to them ahead of the RDR. The new rules make more stringent demands on advisers who wish to manage clients’ investments in-house.
However, in its RDR guidance consultation last month, the FSA said it was concerned about the absence of a formal agreement between certain DFMs and clients who were using them to manage their investments, typically through advisers and investment platforms.
The regulator said the lack of an agreement between a DFM and such clients would constitute “poor practice” after the RDR and warned DFMs could be “operating outside their permissions” if no such agreements were in place.
Glenn Hawksbee, head of sales at Quilter, said that while there is an agreement with clients for the firm’s bespoke services, no such agreement exists for clients coming through a platform.
He also said that Quilter did not have the ability to service clients invested through a platform because “we don’t know who they are”.
In the event an adviser were to go bankrupt or close, he said Quilter assumed the assets would remain on the platform and the client would be contacted by the platform so they could transfer them to another adviser.
“As far as we’re concerned we’re just managing model portfolios on a platform,” Mr Hawksbee said. “We don’t offer a full bespoke discretionary service on a client by client basis on third party platforms.”
Chris Sandford, business development director at Investec Wealth, said the firm does not have a direct agreement with clients on all platforms it sells its products on. But he said Investec has a “global agreement” with some platforms whereby it, the platform and the IFA sign a deal.
Mr Sandford said where the global agreement is in place there is “no contact with the underlying client whatsoever” but that they do sign a document from their IFA appointing Investec and their choice of model portfolio.
Mr Sandford said the firm had flagged the issue, but was reluctant to make changes until the FSA made clear its stance.
Cazenove Capital Manage-ment, which offers multi-manager portfolios as well as a tailored discretionary offering, said it would not “mass market” model portfolios because it felt a true discretionary model could not be offered through a platform. Clients of its tailored service do sign agreements.