Among the issues thrown up by the implementation of the RDR was the future of centralised investment propositions, including discretionary fund management services (DFMs) in a post-RDR world.
The FSA’s consultation in April 2012 and following guidance in July on Replacement Business and Centralised Investment Propositions (CIPs) also indirectly highlighted potential concerns about hosting these propositions on platforms with the regulator warning: “A firm either selling or intending to sell CIPs should ensure that it is not ‘shoe-horning’ clients into the CIP”.
Richard Mein, managing partner at Parmenion, acknowledges it can be complicated. “It is relatively straightforward enabling a DFM to offer a range of simple model portfolios, but to enable sufficient flexibility to avoid shoe-horning and ensure suitability needs careful management. Some platforms have been built with this functionality in mind but most are adding this as an after-thought and advisers need to explore the usability and treating customers fairly (TCF) issues very carefully.”
However, fears regulation may affect DFM access on platforms seems to have dissipated since the FSA’s last guidance in July and instead the relationship between platforms and DFMs has grown enough that in January The Platforum launched a DFM and outsourcing analysis tool.
Freddie Findlater, head of adviser platforms at The Platforum, says they started to look into the area following an increased focus from advisers that wanted to potentially outsource business but had questions regarding the agreements that have to be in place and where the risk lies.
“We have set up an information source, which is still small in that it doesn’t have whole of market coverage. But it is something we’re watching with interest as it has become a fairly widely adopted model as people are falling back from being fundpickers themselves.
“There were a few question marks last year around operations being slightly threatened by the FSA rules and the paper around CIPs. I don’t think that’s the case any more, but where there are still question marks and where advisers are still unsure is that when they enter into these relationships where does the client sit in all of this? The agreements you’ve got are effectively entering into a contract with three parties, the adviser, the DFM and the platform. Another adviser worry we hear about is how much contact the DFM is going to have to have with the end client if they’re managing money on the platform.”
DFMs, however, seem more than happy to leave the advice process alone and concentrate on doing what they do best and managing the money, of which there appears to be an increasing amount.
Among the platforms that offer access to third party DFMs, Novia is one of the largest in terms of its offering with more than 40 DFMs listed on its platform, and it is an area that looks likely to keep growing according to chief executive Bill Vasilieff.
