Round Up Spring 2019

regulatory matters

Do you understand agent as client arrangements?

Does your client understand the agent as client rules when it comes to model portfolio services ? Do you ? The development of model portfolio services has continued apace over the years and many firms now use them to manage investment risk for their business, and provide consistent solutions to their clients. They have become a profitable way for discretionary fund managers to expand their businesses and offer their services to those with smaller sums to invest. The bulk of these offerings operate on the agent as client basis. Meaning that the DFM only has a relationship with the intermediary, not the end client. This arrangement is legitimate and permissible, but there are a number of regulatory risks to be aware of. The clarity of the relationship chain is vital. It will only work if all parties clearly understand their different roles and responsibilities, and if these are appropriately documented. In most cases, the intermediary firm will hold only advisory permissions, so it’s just the DFM that can manage investments. Doing anything that constitutes managing investments by discretion would amount to the intermediary acting outside of their scope. The DFM will manage the portfolio, rebalancing New! Completing your GABRIEL return zone

or making changes as and when they see fit. It’s common for the DFM not to know how many individuals are investing in their portfolios. This is not important. They merely engage with the advisers and permit them to invest their client’s funds into their offerings. As for the client, they need to know who the discretionary manager is, but that they don’t have a relationship with them. They need to understand the arrangement, its implications, and be shown it’s suitable for their needs. The adviser should explain the full rationale behind the agent as client position in the suitability letter which recommends the DFM’s model portfolio service. Additionally, if a firm offers the agent of client model, the adviser’s client is unlikely to have access to the FOS in the event they wish or need to complain about the DFM’s provision of services. This should be clearly explained. Our work with firms suggests some are still not fully understanding the agent as client relationship. What’s of more concern is that it’s often not adequately explained or documented with the client. If your firm provides a discretionary management service, we recommend that you review your approach to documenting this advice, to ensure agreements, recommendations and the associated implications are fully explained and understood by all involved.

Our new GABRIEL zone contains all the guidance you need to complete your regulatory return. Access it via the homepage and select your firm type from the menu (Article 3 exempt non-MiFID, authorised professional, BIPRU, or exempt CAD). Video guidance is also available to assist with the trickiest sections. Need our help when completing your return? If required you can set threesixty up as a ‘view only’ user on GABRIEL. This allows us to log into GABRIEL, to assist you with any queries relating to your return. For more information see the threesixty website, alternatively contact our compliance helpdesk who will be pleased to assist.

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