Brooks Macdonald is sending out revised suitability agreements to advisers and clients in a bid to make clear where responsibility lies for the DFM-adviser relationship.
The discretionary manager sent out revised documents to managed portfolio clients at the end of February and has just begun to send them to bespoke clients.
Andrew Shepherd, managing director at Brooks Macdonald, said the new suitability documents were designed to make it “clear to the client who has responsibility for suitability”.
He said he did not think clients had been confused before but said that “in this environment it is best to be clear”.
Mr Shepherd said Brooks Macdonald had already asked whether advisers were going to take responsibility for assessing suitability or whether they wanted Brooks to do it.
The firm found that 95 per cent of advisers said they were taking responsibility and, on the back of that, Brooks’ new documents state that the discretionary manager is only responsible for the investments within each portfolio.
Mr Shepherd said: “We just have responsibility for the end portfolio. The choice of mandate is down to the adviser, how they come to pick that, using things such as the client’s risk profile, that is down to them. Then they also need to do affordability checks and other checks, and then they come to us.”
Mr Shepherd said that Brooks accepted no responsibility for suitability with its managed portfolios, because it did not have any contact with the end client.
The firm has also taken the opportunity to update its records about its clients, has presented an expanded description of its risk-profiling measures and has advised clients about its expanded range of direct equities.
Mr Shepherd said the revised agreements were being sent out now because before the RDR came into force people were not “in a position to understand what all the requirements would be”.
“The FSA, now the FCA, is taking a much closer stance on this so we are making sure exactly who is responsible for what,” he said. “It needs to be black and white.”
Mr Shepherd said the decision to send out new suitability documents was not a direct reaction to the regulator’s increasingly heavy rhetoric on the issue of suitability and that it was something it was always planning to do after the RDR.
Responsibility for suitability
Advisers do not seem surprised that such reviews are needed.
Kevin Morgan, Consilium Financial Planning
“I use Brooks Macdonald for some of my clients and I am aware that they have issued new agreements to clients. I believe it is as a result of their compliance people saying they must be bulletproof, looking to protect themselves as there have been some instances of confusion about who does what in the relationship.”
Simon Webster, Facts & Figures Financial Planners
“The FSA’s rules on these matters of client suitability for investment products are so convoluted and labyrinthine that it shouldn’t be surprising if there are some clients who are tremendously confused.”
Aj Somal, Aurora Financial Planning
“The actions of Brooks is not surprising, and it will not be at all surprising that other DFMs look to take this action as well. Brooks is correct in thinking it should only be responsible for the end portfolio and that all other suitability checks are the responsibility of the adviser. Any adviser who thinks they can just outsource the investment advice/suitability risk away from their firm when still advising the client is fooling themselves.”
