In its Final Guidance paper FG 12/16 the FCA proposes a sliding scale of investment opportunities would be a good way to set up a company’s centralised investment proposition (CIP).
These suggestions include:
• A preferred fund panel for transactional clients;
• A suite of low-cost managed funds for clients with modest asset levels who require a low-cost ongoing service;
• A model portfolio service for clients with higher levels of assets and investment experience, where the additional costs are appropriate; and
• Discretionary fund management for clients who require bespoke investment management solutions.
There is a temptation here to think of the solutions in terms of client wealth. There may be some logic in this, but advisers tell us that the lines are blurred.
Some wealthy clients want minimal interaction with investment managers, and a premium, bespoke solution will not be for them. Equally, some clients with relatively less wealth can be very demanding, so minimum investments permitting, a hands-on service may be more appropriate. This is why any due diligence undertaken has to have the individual client at the heart of it.
This is probably obvious to most advisers, but it leads to thinking about other elements of discretionary selection that may be so obvious that they slip through the net when undertaking due diligence.
Researchers and paraplanners will be trying to identify all pricing points to come up with a good estimate of the cost of the service.
Regardless of the outcomes, which would tend to include the published service fee, most discretionary fund managers (DFMs) are open to negotiation on that charge.
REGULATOR’s VIEW Research and due diligence |
In February 2016 the FCA published a thematic review on Assessing suitability: Research and due diligence of products and services. Among its findings, the regulator noted: “When firms have centralised investment propositions [CIPs], they must still ensure the advice is suitable for the individual client. Firms which offered a CIP typically had a centralised function to carry out research and due diligence. “While this approach may be appropriate, such firms should ensure that individual advisers understand the benefits and risks of the CIP (including the products, funds and services used) to enable them to identify clients for which it is, and is not, suitable. “For example, as part of this process some firms would update advisers with changes to the CIP through regular team meetings or training.” |
It may depend on the promise of future business, but there is usually some wriggle room. Therefore, do not necessarily dismiss solutions at an early stage in the selection process purely on published rates.
Clearly we should all try to keep costs to a minimum for clients, but it makes more sense to look at this in terms of value for money.
If a solution ticks all the boxes in terms of client requirement and suitability, it may be worth paying a little extra for. This is something that can be discussed with the client and why it is worth breaking research down into ‘must have’ and ‘nice to have’.
