If reducing internal costs and improving overall efficiencies are part of an adviser firm’s strategic direction then utilising the services of a DFM to manage the investments within a centralised investment proposition becomes an option worth considering. The FSA published a draft guidance consultation paper, GC12/06, Assessing suitability: Replacement Business and Centralised Investment Propositions, earlier this year, which focuses on the advisory process to recommend discretionary investment management accessed through a CIP. This has thrown up various areas that the regulator believes financial planning firms should take into consideration.
Having made the decision to explore the idea of using a DFM, what are the main factors that adviser firms should bear in mind when carrying out their own due diligence on which DFMs might be most suitable to manage the investments in a CIP or be included on a panel?
The first thing to be determined is to confirm exactly what the financial adviser firm’s overall philosophy and proposition is going to entail; will it need to change with the onset of RDR or can it remain as it is? Once the strategic direction of the firm has been decided, then identifying potential DFMs with the particular expertise the adviser firm is looking for becomes a lot easier, though it will still take time and effort.
The FSA’s draft guidance paper makes the point that when advisers recommend a CIP managed by a DFM, they should ensure that the CIP does indeed meet the needs of the client. The CIP cannot be seen as a one-size-fits-all solution but should only be recommended if in the client’s best interests. Advisers are best-placed to establish this as they understand the client’s long-term objectives and current financial situation having carried out a detailed risk-profiling exercise.
