Advisers urged to review discretionary agreements

by | Jul 17, 2017

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Advisers are being told to urgently review their discretionary investment management (DIM/DFM) agreements, as there are fears that thousands may be working with inadequate terms.

The warning comes from the Personal Finance Society (PFS) which says that such agreements often treat the adviser as the (professional) client of the DIM/DFM, acting as authorised agent of the underlying investor.

However, as the PFS explained, 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.


Therefore, 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, the PFS concluded, 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.”

A statement from the PFS said that it 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’.”

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