PFS Warns on Discretionary Fund Manager Complaints

The Personal Finance Society (PFS), the financial adviser branch arm of our professional body the Chartered Insurance Institute, has issued a warning on the use of Discretionary Investment Managers (DIM) by financial advisers.

Does your financial adviser use external DIMs?  What is a DIM?

A Discretionary Investment Manager is a fund manager that, at their own discretion, decides where your money is invested.  They can invest, disinvest, select stocks, shares, bonds or other instruments to invest your money or sell at their own discretion.

Due to the PFS’s recent findings they have issued an interactive guide for both financial advisers and their clients to understand the use of DIMs.

The guide is designed to help

• Financial advisers understand the regulatory requirements for acting as the Agent of you, their client
• Financial advisers and consumer understand the potential consequences for all
• Prompt financial advisers to assess the suitability of the existing agreement with you
• Help you and your adviser consider alternative bases for your client agreement

Comment

If you have signed an agreement with your adviser who then contracts out the fund management service to a Discretionary Investment Manager (DIM) you may have not realised how vulnerable you could be with regard to any future dispute or claim.  You are also potentially exposed if you have not read and understood your client agreement.  This is because most clients have a client agreement with their financial adviser and it is the financial adviser that then has the contract of appointment with the DIM.

There are many financial advisers who choose not to make fund recommendations or ongoing management and choose to contract this out to DIMs, yet they still charge their clients for an ongoing advice service.  This means that your financial adviser is the client of the DIM (agent is client) and not you, the investor.  This means that not only should your financial adviser include this in their agreement with you, you also have no recourse to the DIM if there is negligence in the form of investments made or indeed investing outside your normal risk profile.  In addition, not only are you paying your financial adviser, you may also then be paying a charge for the DIM and then additional charges levied by the actual investment or fund.  All in all we believe this route is a financial adviser ‘cop out’ route, where they are ducking the responsibility or advising on investment funds within your agreed risk profile, yet still charging for the same.

We do not use DIM services.  We offer ongoing investment fund advice via our Money MOT service.