Your Industry  

Clarity on responsibility outsourcing

In response to the discretionary fund manager news story (DFM ‘doesn’t add up’ for affluent masses, FA 22 August), while broadly I do not disagree with this, I would make a couple of important comments relating to the point about ‘putting the client relationship at risk through that devolution’.

When using a DFM for smaller (£30,000 to £50,000) portfolios, the client relationship is not at risk if:

* Recommending ‘products’ that are exclusively available through IFAs.

Article continues after advert

* Ensuring, through their due diligence and research, that the adviser works with a DFM that will not provide a financial incentive to a client for sacking their IFA. That is, they do not tread on the toes of the IFA’s regulatory responsibility for undertaking the assessment of suitability of advice, thus ensuring that every participant in the financial advice process has a role that is unique to them.

The reason there are different levels of service offered by DFMs is to cater for different client needs. Those DFMs that are truly supportive and committed to the professional adviser community can justifiably be used at all levels. One of the key challenges is to identify which ones are in that category.

As far as the suitability piece is concerned, the point here is that there are two separate components to the satisfactory achievement of client suitability assessment when working with a DFM. First the suitability of advice (adviser’s responsibility) and, second, meeting the requirements of the investment mandate (DFM’s responsibility).

The above roles are different and have to be paid for separately by the client. If a client chooses to dispense with the services of either party, the services they were responsible for have to be undertaken by another party and appropriately charged for.

For this reason, and to ensure that there is no risk through devolution, it is crucial to be clear about who is responsible – and hence paid – for each role, thereby ensuring no financial incentive is provided to dispense with the IFA.

Andrew Denham-Davis

Director, intermediary sales

Brooks Macdonald Asset Management