The Personal Finance Society (PFS) is urging financial advisers
to review their discretionary investment management (DIM/DFM)
agreements amid fears that thousands may be working with inadequate
These agreements often treat the adviser as the (professional)
client of the DIM/DFM, acting as authorised agent of the underlying
investor. However, many advisers who may not appreciate the
important technicalities, have signed these agreements when they do
not have the appropriate authority from their client to do so. If
not properly engaged, an adviser is not a true agent and ought not
to be treated as the (professional) client of the manager. In the
event of a client complaint, for whatever reason about the
investment, this leaves the adviser potentially exposed.
David Gurr, from the independent due diligence consultancy
Diminimis, which has been working with the PFS on developing best
practice said: "This is a problem that has been building for years.
The issue has slipped through the cracks and it is only the benign
market that has kept it from blowing up. Billions of pounds of
assets are being managed with widespread confusion in the market as
to who is responsible for what in the client relationship."
The PFS has issued a good practice update on 'agent as client'
arrangements to help advisers address the problem. The update seeks
to clarify the requirements of the adviser when operating within
the 'agent as client' framework. This has implications for
advisers, DIMs/DFMs, platform and product providers. Whilst it
applies mainly in managed or model portfolio services (MPS), it can
apply to other services too.
PFS chief executive Keith Richards said: "We have identified
widespread confusion in the market on this issue. The lack of
clarity around responsibilities where advisers and DIMs are
providing services to the same underlying client means many
advisers believe the DIM is responsible for far more than they
actually are, creating a potential 'suitability gap'."
Research undertaken by Diminimis last year revealed that one in
five financial advisers had never reviewed their existing DIM
relationships. In response, Diminimis and the PFS developed
question sets last year, aimed at simplifying and systemising
qualitative research and due diligence on DIMs. More than 1,000
copies of the question sets have been downloaded.
According to Diminimis, an increasing number of advisers are now
using DIMs (57% up from 51% 18 months ago). The number of DIMs
continues to grow, particularly with the advent of Robo-DIMs, and
more than three-quarters of advisers (78%) expect their use of
discretionary investment to increase or stay the same in the
Meanwhile, the Defaqto January 2017 Adviser Survey found that
72% of new business has gone to DFMs/DIMs, with 40% of this through
managed portfolio services on platforms and 26% direct with the
A copy of the addendum to the PFS/Diminimis good practice guide
can be found on the PFS website:
The 2016 question sets, developed by Diminimis and endorsed by
the PFS, can be found at:
PFS website: www.thepfs.org/ddquestionnaire
Diminimis website: www.diminimis.com/membership-area/