Mr Rockliffe claims there is still some debate and confusion around who in the relationship has the responsibility for suitability, the DFM or the adviser, but he adds if responsibility falls on the DFM then there will be far more costs and requirements placed on firms than in the past.
Research and consultancy firm Defaqto recently released a guide which in part attempted to delineate who was responsible for which stages of the relationship between a DFM, adviser and client, but the lack of understanding expressed by all sides suggests the regulator may need to step in to communicate its wishes more clearly.
Among other regulations that recently affected discretionary managers was a ruling from the FSA, and then the FCA, to ban rebates paid by DFMs to advisers that recommend clients to the discretionary manager.
These rebates were seen as totally anathema to the spirit of the RDR and while the removal of them has saved DFMs some money, it has also left them needing to find new ways to attract more business.
Matthew Jeynes is senior reporter at Investment Adviser
INCREASING PRESSURES
- Brewin Dolphin and Charles Stanley have had to raise their fees, and they have cited regulatory pressures for doing so.
- The regulator has clamped down across the industry on whether investments are actual suitable for the clients that are within them.
- There is still some debate and confusion around who in the relationship has the responsibility for suitability, the DFM or the adviser.
- The regulator has clamped down across the industry on whether investments are actual suitable for the clients that are within them.
- There is still some debate and confusion around who in the relationship has the responsibility for suitability, the DFM or the adviser.
DISCRETIONARY MANAGEMENT
DECIDING ON THE SERVICE
According to research and consultancy firm Defaqto, adviser due diligence should be structured to reveal why one service is more ‘expensive’ than another.
POSSIBLE POSITIVE REASONS COULD INCLUDE:
Exceptional personal service
A well-resourced research team with a wide range of skills
Expert use of a wide range of investment vehicles that may include alternatives
High quality investment managers (for bespoke clients)
Superior adviser support network
Providing ability to deal with clients with more complex financial affairs
Access to tax wrappers on favourable terms
SOME OF THE MORE NEGATIVE REASONS MAY INCLUDE:
Excessive trading – portfolio turnover rate should form part of due diligence
Cost of underlying funds may be higher than market average
Outdated systems requiring more manual intervention
Revenue replacement following RDR implementation and changing rules
Lack of scale and resulting inefficiencies
Fund rebates still, at least in part, going back to discretionary manager rather than the client (this is gradually declining now)
