The PFS has commissioned this Good Practice Guide to help Adviser Firms develop their approach to due diligence (DD) on Discretionary Investment Managers (DIM’s) and the service they provide.
The aim of this Guide is to assist member firms of all sizes address a challenging topic in an efficient and client-centric manner.
This Good Practice Guide is the first in a planned series of guides that are being developed for members in collaboration with experts in their field and the Financial Conduct Authority.
In association with Good Practice Guide For many advisory firms the run up to RDR involved a significant amount of soul searching and it was a catalyst for many to question, and focus, on the core components of their value proposition.
One conclusion for many firms was that investment management was not an area where they had the necessary skills, experience or capacity in-house.
Discretionary Investment Management (DIM) became a buzz word and a plethora of new DIM firms entered the market to court advisers, seeking to entrust considerable sums of their clients wealth.
However, for many advisory firms choosing a DIM partner was a steep learning curve.
In the absence of a well-established due diligence model, some firms struggled to add the layer of additional cost that represented the best value for money for their clients.
There was also a lack of clarity over contractual relationships in terms of what outsourcing actually means and the resultant obligations on the adviser firm. Research and due diligence, especially in relation to DIM, is a key area of attention for the Regulator.
As with any business partnership a careful audit trail documenting the research and due diligence steps taken is essential. But don’t forget that an element of due diligence often boils down to intangibles such as culture and trust.
You need to establish whether the approach of the discretionary manager is compatible with your own beliefs – is there a philosophical fit and could you realistically work with the people on a regular basis?
Don’t forget that both the adviser and any DIM both have suitability obligations to the same client, so it is essential there is documented clarity over who will be responsible for what.
Working with a DIM does not mean the outsourcing of responsibility or advice liability.
This guide is focused on helping firms understand good practice when conducting research and due diligence on discretionary investment managers and don’t forget that the process is equally applicable to regular reviews.
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