Platforms are divided as to whether recent FSA guidance on centralised investment processes could mean the end of traditional discretionary fund management services.
The FSA’s guidance, published in April, says advisers offering a DFM service must have the correct permissions to manage client investments.
If they are referring clients to a third-party DFM, advisers must arrange for a contractual relationship between the client and the DFM.
Speaking at the PIMS conference last week, 7IM chief executive Tom Sheridan said the regulator may look to go a step further and require DFMs to have a direct relationship with clients.
Sheridan said: “If you do not have discretionary authority or a signed agreement from the client by January then the implication is that model portfolios are dead. The FSA is concerned advisers are putting clients into portfolios without the client agreeing to them.
“But even if there is a contractual agreement in place between the client and the DFM, the DFM still does not have a real relationship with that client.
“Is that a point the FSA will look at? The FSA might insist the discretionary manager knows the client.”
The FSA’s guidance says the regulator is concerned about clients being “shoehorned” into unsuitable propositions.
The regulator assessed investment files from 17 firms that recommended centralised investment processes. It found the quality of disclosure to be unacceptable in 108 cases, the quality of advice to be unclear in 103 cases and unsuitable in 33.
Novia sales director Paul Boston said the DFM model is not dead but advisers have to ensure they have carried out and documented the correct suitability procedures.
Boston said: “As long as you have evidenced suitability and conducted the research that finds it appropriate for the client, then the discretionary service is still a service advisers can use. I do not think the model is dead.”