courtiers – discretionary service unable

Discretionary investment managers offering a service direct to clients will not be able to describe themselves as independent post-RDR, according to Gary Reynolds chief investment officer at Courtiers.

courtiers - discretionary service unable


Following a meeting among the directors of the firm to address business-modelling ahead of the implementation date of the Retail Distribution Review, Reynolds said it had been recognised Courtiers might have to offer a two-tier service from 1 January.

The premise behind this is enshrined in the FSA’s guidance consultation paper published in February this year, which focuses on independent and restricted advice.

Under section two of the paper, titled "The standard for independent advice", the regulator says that independent advice is "a personal recommendation to a retail client in relation to a retail investment product" which is based on comprehensive and fair analysis of the relevant market and is unbiased and unrestricted.

The key element Courtiers has focused on in this section of the paper is the definition of a retail investment product which follows.

Retail investment product

  •  a life policy
  •  a unit
  •  a stakeholder pension scheme
  •  a personal pension scheme
  •  an interest in an investment trust saving scheme
  •  a security in an investment trust
  •  any other designated investment which offers exposure to underlying financial assets in a packaged form which modifies that exposure when compared with a direct holding in a financial asset
  •  a structured capital-at-risk product

Since Courtiers offers clients within its discretionary service exposure to individual bonds, equities and derivatives within their portfolios it cannot be described as independent.

In case there is any doubt, the FSA adds: "In general we expect there to be very few types of investment products sold to retail clients that would not fall within the definition.

"Examples of financial instruments that are not retail investment products would include a share in an individual company, an individual fixed interest security and an individual derivative."

Two tier business

So Courtiers finds itself in a situation where it will have to offer a restricted discretionary service and an independent advisory service.
"If you are a discretionary investment manager that only takes mandates through IFAs it will not affect you, but if you offer your clients the option of being advisory discretionary it most certainly will affect you," Reynolds said.

His main beef with this is the confusion for clients, who will be offered a service branded independent which actually looks at smaller universe of investment ideas.

For more on this, including other firm’s business modelling concerns, look out for the June edition of Portfolio Adviser magazine.



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