Meet and greet
The second discussion point stems from advisers’ natural instinct to protect their client base by controlling client meetings and who attends them. It is often presumed this can only be achieved by working on an ‘agent as client’ basis but, where we are talking about a discretionary management service, the need for suitability to be established both at the outset and on an ongoing basis to ensure a decision to trade is paramount.
This is distinct from a transactional product recommendation, which only requires suitability to be determined initially and can put even more onus on the adviser’s systems and control requirements.
To achieve protection of the client base, it is possible to explore an ‘indirect’ client relationship between the client and the DIM. In this situation, a DIM can rely on the adviser for information about the client and for undertaking a suitability assessment.
This opens up a range of operating frameworks, but there are associated risks for both parties that add to the need for clarity regarding who is doing what and how information about the client is interpreted and transferred.
The danger for the DIM and the adviser is that should a complaint arise due to a failure within the operating procedure leading to a systematic problem, it is more likely to involve a group of clients affected by the same issue, rather than be a complaint affecting a single client. While the ‘agent as client’ approach may seem the best protection of an adviser’s client base, it can be achieved through different means, at the same time as allowing a more efficient operating framework to be put in place.
The adviser is the communication channel through which information about the DIM and the service is relayed to the client. The DIM community has put significant efforts into getting its client paperwork correct and its marketing literature clear – although use of the term ‘outsourcing’ still exists. But clients are more likely to remember what they learn from a discussion with the adviser than from marketing documents.
As such, the misunderstandings above should be a concern for many DIMs. The regulator is not prescriptive about how two entities need to work together when offering services to the same client, meaning the two parties can agree between themselves how to apportion and document responsibilities. The FCA has given guidance in the Regulatory Guide RPPD and more recent publications that the circumstances, including the riskiness or complexity of the portfolio, the amount being invested, who the firm is dealing with and the financial sophistication of the target market, must all be considered.
The DIM and the adviser have suitability obligations to the same client and this must be documented. The challenge is to make the operating framework meet the needs of both parties while enabling the message to the client to be clear on who is doing what for them.
