Adviser insight | IFAs must make the case for independence to deputies says Rosemount FS’ Ahmed Bawa

Written by Ahmed Bawa, CEO, Rosemount Financial Solutions (IFA) 

There is a lot of responsibility involved with playing the role of legal deputy. Deputies are appointed to oversee the investment decisions on behalf of a client, often someone who has been awarded compensation to cover the costs of ongoing care for the rest of their life. Making sure that the funds are handled appropriately, and the client benefits from the best possible returns, is a big part of the role. 

However, there are concerns that deputies are too often heading straight to discretionary fund managers (DFMs) with whom they already have a relationship, rather than making the most of the independent expertise of an IFA. As advisers, it’s vital for us to correct this issue and make the case for partnering with IFAs.  

There is a certain logic for deputies to go to a DFM. If they already work with them, then there is no friction involved – they can just get started managing the client’s money.  

There can also be a sense of credibility, since these DFMs are large, well-known names. Surely they know what they are doing, and can deliver for the client? 

However, this is not an accurate impression, and can leave both the client and the deputy exposed to negative consequences.  

The downsides of a DFM 

As IFAs, we know full well the importance of shopping around. It’s only by comparing all of the options that you can make an educated decision about which is the best route to follow.  

That shopping around process doesn’t happen with a DFM, or at least not to the same degree as it should. With a DFM, the client often only has the options of the manager’s own funds, or those from affiliated firms. If these underperform compared to other funds, available to the wider market, then the client ends up worse off.  

The DFM route comes with higher costs too, with the payment of VAT further bumping up the outlays, alongside the potential of bias or conflict of interest – we know that there is a danger of investments being recommended by the DFM for their own purposes, rather than in the best interests of the client. 

And then there is the question of regulation. The lack of a clear paper trail to document why specific investment decisions have been made can leave the deputy exposed to enforcement action. This isn’t just a hypothetical risk either – we have seen court cases in the last year on this very subject. 

A judgement from the Court of Protection last year showed that this is a clear issue, finding that deputies who appoint an investment manager from their own firm are facing a conflict of interest. This logic equally applies to the appointment of DFMs, and means deputies have to be able to show they have followed a proper process. 

Promoting independence 

The sort of people that require the services of deputies are, by their nature, in a vulnerable position. They may have suffered an injury as a result of the actions of others, and are reliant on the support of those around them in order to enjoy the best possible standard of life. 

That’s why it’s so crucial for IFAs to make the case to any solicitors in their orbit, to highlight the benefits of working with an independent adviser. The client enjoys a much wider level of choice, which may be more appropriate for their needs or simply deliver a more stable experience. And as we all know, IFAs have to go above and beyond in demonstrating why they have recommended a particular course of action, with continuous oversight so that the path can be adapted as and when necessary.  

This is far from a one-off service, it’s a genuine relationship. 

Why this matters 

For IFAs, now is the time to champion the industry, the value of true, independent advice. Speak to solicitor firms, build relationships with deputies, open that door. These are vulnerable clients who need their money to be managed responsibly. The easy option of a DFM isn’t going to cut it, but unless we as IFAs stand up for the sector and make that case, things may not change.