Confusion reigns in IFA/DFM relationship

Confusion reigns in IFA/DFM relationship

Advisers and discretionary investment managers are confused about their relationship, the former head of financial intermediaries at Deutsche Bank Private Wealth Management has said.

David Gurr has now launched his own firm to provide due diligence to advice firms and help them select a suitable discretionary fund manager.

One of the examples of this confusion, he said, was the frequent use of the word “outsourcing” to describe the relationship, but in reality this was rarely the case.

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Mr Gurr pointed out that an IFA cannot outsource their investments unless they have managing investment permissions.

The result of this is that many advisers believe a DFM is responsible for more than they actually are, he said.

Mr Gurr said: “The retail distribution review has basically led to the end of the financial adviser being at the end of the product distribution chain.

“Both the financial adviser and the DFM have a responsibility to ensure the investment solution is suitable for the client.”

Mr Gurr said he had spoken to one adviser who spent £78,000 carrying out the process of due diligence for an investment service.

This led him to create his new firm, which will work with an adviser to carry out due diligence and narrow down investment services to create a shortlist.

He said: “Due diligence needs to be central to adviser firms’ informed decision-making, both at the start of the relationship and on an ongoing basis. This is challenging and costly for individual firms to do alone.”

The issue of due diligence is one into which the FCA is carrying out a thematic review.

Adviser view

Carl Melvin, director of Renfrewshire-based Affluent Financial Planning, said: “I think there is reasonable clarity, but advisers need to recognise the boundaries of their competence. I don’t think most advisers have the resources to do due diligence properly.”