Advisers are facing increasing pressures on their time, with due diligence being a major factor in this. Post RDR, independent advisers are expected by the FCA consider a much wider range of products including investment trusts, ETFs, venture capital trusts, enterprise investment schemes and structured products, in addition to traditional funds. This means there are far more demands on them to assess the sheer volume of investment structures on the market to find the most suitable ones for their client.
Additionally, the strict requirement to prove suitability of all recommendations both now and in the future means there is a greater onus on advisers to carry out research and in-depth analysis. The FCA is treating this as a priority and administration burdens are increasing as more documentation of findings is needed. Advisers are now obliged to record why investments were rejected as much as why they were recommended.
Many advisers are also concerned that in future a new definition of compliance may be applied retrospectively. For them, the only safe course now is to far exceed current minimum standards of compliance to prevent problems in the future.
The regulatory environment has also seen huge changes. Advisers have an increased responsibility to learn about the implications and opportunities created by big regulatory changes (such as the accessibility of personal pension pots at a much earlier age). This is another constraint on advisers’ time.
This has inevitably led to an increase in workloads. As a result, we are seeing a growing number of advisers looking at outsourcing to intermediaries such as DFMs to take away some of the due diligence burden. In turn, they are focusing more and more on financial planning and are less concerned about being experts in investment management.
The advantage of this arrangement is that each party is able to play to their strengths. Customers benefit from the expertise that both parties bring. DFMs provide the investment expertise, and have teams of researchers who focus on individual stock selection and can blend funds to manage different types of risk and reward. Advisers have a strong personal relationship with the client and their family, and can use this knowledge of the individuals’ situations to make recommendations on all aspects of financial planning and protection.
In summary, this is a development we can only see continuing, as time constraints grow on advisers, and it is an important factor in the increasing trend towards outsourcing.