In its long awaited guidance on “centralised investment propositions” (Cips) – IFAs’ primary means of outsourcing their clients’ investments – the FSA last week confirmed that a three-way agreement does not always have to exist when advisers outsource their clients’ investments to a discretionary fund manager (DFM).

In cases where an adviser has agreed to act as the client’s agent, the client does not have to form a direct contractual agreement with the DFM, the FSA said. However, the adviser must explain that it is outsourcing their clients’ investments to a DFM, and that this arrangement will leave the adviser as a customer of the DFM – not the adviser’s client.

The issue sounds legalistic and even arcane – like much of financial regulation, in fact. However, advisers have raised concerns in the past that a direct relationship between DFMs and clients could lead to business walking out the door. Their fear is that clients will either cut the adviser out and deal direct with the DFM or with the DFM’s own advisory arm. The clarification last week would appear to solve that problem.

But advisers also last week told Investment Adviser that the FSA’s final guidance still leaves questions unanswered. Most significantly, if the client has an agreement with their adviser, but not the DFM, it becomes unclear who the client or the regulator can hold responsible for what might happen if their DFM investments go wrong.

Additionally, the final guidance comes without clear examples of what happens to clients’ money in the event that a client chooses to change adviser, or if an adviser was to go bankrupt. In the scenario above, the client would not be a customer of the DFM – the adviser would be. To what extent could the client control what happens to their money under those circumstances?

Although the consultation is supposedly over, the FSA needs to provide further clarification on how this arrangement can work. As it stands, its finalised guidance raises more questions than it answers.

Jenna Voigt is news reporter at Investment Adviser