The Personal Investment Management and Financial Advice Association (Pimfa) has published a guide for advisers and discretionary fund managers to help them understand the different ways in which relationships between their firms can be structured.
The guide has been drafted by Threesixty Services, with input and collaboration from Pimfa and DFM Connect, a group of firms providing discretionary services to advisers and their underlying clients.
The paper deals with how the relationships between adviser firms, their clients, and DFMs can best be structured in line with the FCA rules on ‘agent as client’ and ‘reliance on others’, taking account of the increasing role that platforms play in making third-party discretionary services available to advisers.
In August, AJ Bell announced it was switching to a reliance on others model, a structure it said reduces risk and cost for advisers because it means they will not be responsible or liable for the investment decisions made in the underlying portfolios.
At the time industry figures said the move could one pile pressure on other DFMs to adopt similar changes.
Purpose of the guide
The impact of the Retail Distribution Review (RDR), which introduced a ban on referral payments between advisers and DFMs, has also led to them to working more closely together in partnership rather than operating on a simple referral basis.
The purpose of the guide is to outline what the adoption of the agent as client or the reliance on others model means for advisers, DFMs and their clients in practical terms, such as:
- Who undertakes which activities?
- Who owes which obligations to the client?
- What documentation is required?
- What needs to be made clear to the client?
The guide highlights the pros and cons of both models, and sets out the features of each, allowing firms to make informed decisions about which is likely to work best for their business and their clients in any given scenario.
It also seeks to give all parties, whether adviser firm, DFM, or platform, a steer as to how best to structure their relationships, while continuing to ensure that the client’s best interests drive decision making and that there is clear agreement and disclosure between the various parties over roles and responsibilities.
Tricky to interpret
Pimfa chief executive Liz Field (pictured) said: “The agent as client and reliance on others rules have always been tricky to interpret and apply but it is important for advisers and discretionary firms to get this right, both for their own sake and, more crucially, for their clients.”
Threesixty Services head of compliance strategy Vanessa Johnson added: “This guide sets out the various options and identifies the respective pros and cons. At the heart of these arrangements lies the client’s best interests.
“It’s therefore important each party understands the structure of the arrangements they set up. We hope this guide provides some welcome clarity.”
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