Compliance tip: Reporting losses to discretionary clients

A discretionary fund manager can choose not to have a direct relationship with the end investor.

In these circumstances, the client’s adviser acts as an agent.

New Mifid II reporting requirements require DFMs to report losses of 10 per cent or more in portfolio values based on the value at the beginning of the reporting period, excluding any cash withdrawals.

Reporting deadlines are tight. The client must be informed no later than the end of the business day in which the threshold is exceeded.

Where an adviser is acting as agent, the responsibility to report to the end client is likely to move, via the agency agreement, to them.

Where this is the case, it is important to consider how the adviser might achieve this, especially where existing systems and personnel may not be equipped for the task. Remedies will vary depending on client numbers and portfolio complexity.

In checking your firm’s agreements with a DFM, you need to see where responsibility lies for the separate duty of issuing quarterly reports – is that with your firm as well, using information supplied by the DFM?

In the case of a tripartite agreement where the firm and the client each have
a distinct agreement with the DFM, it is likely these reporting duties will fall to the DFM.

It remains to be seen how advice firms will interact with these rules on an operational basis, but it is certainly a key area to be aware of.

Russell Facer is managing director at Threesixty


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  1. Are ? quarterly reports compulsory fro pension trustees

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