One of the most critical reports a DIM firm must create is the ICAAP. This is an item the FCA expects to be reviewed regularly, therefore the chosen software employed must produce the necessary management information to ensure that the firm is meeting the obligations set out and remains relevant to the business.
When producing the ICAAP report, it is necessary for the firm to produce a Risk Register against which its performance can be measured.
Without the relevant MI, the Risk Register cannot be evaluated correctly. Furthermore, this software must be able to help identify and quantify risks to the DIM business.
Apart from ICAAP another stand-out area for DIM firms is the 10 per cent rule.
This rule states that where a DIM firm carries out discretionary management for a client, if the overall value of the portfolio depreciates by 10 per cent, and thereafter at multiples of 10 per cent compared to the beginning of each quarterly reporting period, the manager must inform the client by the close of business on the day the breach occurred.
If the breach occurred on a non-business day, the notification must take place on the next available day.
On the face of it this sounds simple, but it is complex.
Suppose the client has more than one portfolio, only one of which falls more than 10 per cent, and overall, between the portfolios, the fall is less than 10 per cent?
It is important that the back-office software is able to identify problems such as this in order for the DIM firm to be able to make the appropriate judgement call.
Another important consideration is call recording, not only in relation to clients but also in relation to placing orders with the firm’s designated brokers.
Implementing the right software will enable the retrieval of voice recordings which is important when disputes occur or when clarification is sought.
One area where DIM firms may have a significant advantage in the area of technology is in the very latest platform developments. Technology firms are now looking to provide advisers with the capability of being platform providers.
This is not a white-labelling exercise, but rather a true initiative designed to make adviser firms a platform provider. The technology is new and could potentially help with significant cost savings both to the DIM firm and the client.
DIM firms score in that they will already hold the relevant permissions regarding custody of assets and controlling client money.
It is a new development, and is in its infancy, but this could be an area where DIM firms could use technology to further differentiate their services to clients through offering a higher-level service proposition.
