Financial advisers plan to outsource more investments to discretionary fund managers (DFMs) over the next 12 months, prompting a call for more adviser due diligence of these firms.
Nucleus, a UK wrap platform, found that nearly half of the “around” 200 advisers it surveyed will increase their use of DFMs.
Nucleus says this means there is a stronger need for adviser scrutiny to “ensure DFMs are fulfilling their clients’ needs”.
The Financial Conduct Authority (FCA) recently published findings of a thematic review, TR16/1, of due diligence carried out by adviser firms on the products and services they offer to retail clients.
Barry Neilson, business development director at Nucleus, says advisers need to extend due diligence to all major outsourcing projects and “hold DFMs to account to make sure they are the best choice for a particular client”.
Advisers need to look beyond DFM performance and consider investment companies’ wider infrastructure and ability to address risks, said Neilson.
Discus, a forum for discretionary investment, has teamed up with Nucleus to bring publicity to the issue.
Gillian Hepburn, director of Discus, said: “Since the release of its recent thematic review, the regulator is clearly focusing on best practice with respect to due diligence and, in particular, are looking at platform selection, product selection and overall DFM selection”.
She added that there are cases when model portfolios might be more appropriate for advisers than a DFM.
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