Do you have time to select Investment Products?

The CWC Research managing director, Clive Waller expressed his concerns regarding time-poor advisers making these important decisions at the PortfolioMetrix’s ‘The Mix Forum’ event:

The key points are:

  • a decreasing number of advisers made their own fund selection decisions
  • Generally, advisers don’t have the time to do all they need to do and run the money
  • almost 48% of advisers relied solely on a risk tool
  • “The regulator doesn’t want you just using the risk tool, as some of them don’t work well enough.”

Please contact us to set up an evaluation of AssetQ – a unique fund risk profiling tool (that the FCA has seen) using qualitative and quantitative data, assessed entirely in line with your house (not a third party’s) view regarding risk.



Are you or your DIM responsible for Investment Product suitability?

This Professional Adviser article presents the Diminimis founder and consultant, David Gurr’s concerns with great clarity.

The key points are:

  • There is confusing terminology used by the regulator in regard to outsourcing
    • ‘outsourcing’ in the regulatory sense meant you have to have the “appropriate permissions” to outsource, but that only applies to the DIM
    • “If you operate on the basis where you are the client of the DIM as opposed to being the agent of the client you have additional responsibilities in legal terms to address”
    • Understanding the difference between who is the professional and who the retail client is another confused definition
    • a DIM can invest in assets that are suitable for professional clients, the adviser, but your clients are retail clients,”
  • a mere two of 160 advisers said they had read their intermediary terms of agreement with their DIM
  • “I believe the balance of risk has shifted far too much against the adviser – that exposed you in areas you probably don’t have any idea about.”
  • Gurr pointed out the end client could take their complaint about the adviser to the Financial Ombudsman Service (FOS) but the adviser could not take the DIM to the FOS.
  • “Both you and the DIM have suitability responsibility with the investments chosen but if you don’t know what that is then there is a chance of a suitability gap.”
  • a 2012 review of DIMs by the regulator that found about 73% of client files did not support suitability of the advice given to the end client
  • confusion remained particularly over who carried responsibility for the investment product and the investment service
  • Under current regulation responsibility for the “designated”, or external, investment product lies with the adviser
  • many advisers were not clear on the difference, and in some cases were therefore falsely asked by the DIM to take on responsibility for both, the service and product

Please contact us to find out how we can help you meet your suitability requirements – specifically relating to investment products.

FCA: “any personal recommendation which is given to a client through a streamlined advice service must nevertheless be suitable”

The FCA’s consultation paper regarding streamlined advice came out last week (


The key takeways from the 51 pages are:

Section 2.6
“MiFID II contains obligations which require a product distributor to

  • understand the financial instruments it offers, recommends or sells;
  • assess the compatibility of the financial instruments with the needs of the clients to whom it provides investment services….and how they fit in with the end clients’ needs and risk appetite.”

Section 2.18
“Some financial products are also unlikely to be appropriate for a streamlined advice process because of the amount of information likely to be needed by the firm in order to make a suitable personal recommendation to a retail client. In general we would expect that the more complex, highly concentrated or illiquid the product, the more likely it is that firms will need more information about the client’s broader portfolio in order to meet the firm’s suitability obligations.”

Section 2.41
“The suitability assessment is a firm’s responsibility and a firm should avoid indicating to the client that a certain financial instrument is the one that the client chose as being suitable, or requiring the client to confirm that an instrument or service is suitable.”

Section 2.45
“We would remind firms that they are responsible for ensuring that their personal recommendations are suitable.”

Section 4.20
“if a firm expressed its opinion of the importance or merits of the features of a product, this would be likely to amount to giving regulated advice”

Section 4.24

  • “If any information is given that would amount to an opinion by the firm providing the service – for example, on the likelihood of risks or any hierarchy of how important different risk considerations might be, this is likely to be regulated advice. “
  • “any personal recommendation which is given to a client through a streamlined advice service must nevertheless be suitable”
  • “In general we would expect that the more complex, highly concentrated or illiquid the product, the more likely it is that firms will need more information about the client’s broader portfolio in order to meet the firm’s suitability obligations”


Our assessment of these key points are:

Section 2.6:

  • The responsibility to understand the financial instruments is firmly placed on the product distributor (the adviser).
  • Additionally, the compatibility of the financial products recommended is not limited to a risk profile match – it includes the “needs of the clients” e.g. drawdown. This remains an advisers’ responsibility – regardless of whether the advice is streamlined or not.
  • When a DFM is a product distributor (by MiFID II’s definition), the products they distribute need to be as compatible with the end clients’ needs as they are with the end clients’ risk profiles.

Section 2.18:

If streamlined advice is to exclude products that use leverage, lack diversification and/or carry high levels of liquidity risk, should all property funds, smart beta and conviction funds be excluded? Probably not. It is more likely that advisers need to understand the levels of leverage, concentration, liquidity etc in the products they recommend.

Section 2.41:

This is consistent with past FCA publications – FCA SYSC 8.1.6R, CP12/09, TR15/12 and TR16/01 – removing any ambiguity about who is responsible for ensuring that the end clients’ needs and risks are compatible with the financial instruments recommended.

Section 2.45:

  • When technology solutions are used to profile a client and pick a portfolio (DFM/MPS provided or CIP constructed), the adviser remains responsible for suitability.
  • Suitability assessment is not one sided i.e. it does not begin and end with risk profiling of the client. It includes risk profiling the financial instruments too.
  • Suitability includes risk assessing the financial instruments and matching the client risk (and needs) to the product risks and features.

Sections 4.20 and 4.24:

  • Providing generic information on risk produced by a third party does not require advisers to be regulated. So, if advisers do not express an opinion, they do not need to be regulated.
  • If unregulated advice lacks opinion, then the flip side is that regulated advice should include an opinion – on the importance and/or merits of the features of the recommended (or unrecommended) products including opinions on the likelihood of risks.


In summary

  • Unregulated advice can lack opinion, whereas opinion is expected in regulated advice.
  • Regulated advisers are responsible for suitability – whether the financial products are selected through automated processes and/or a third party.
  • Suitability is not limited to risk matching – it includes needs matching.
  • Suitability is two sided i.e. it involves assessing both the client and the financial instruments.
  • Suitability matching is not possible unless both the client’s risks and needs and the financial products’ risks and features are well understood.
  • Advisers should understand the features of the products they recommend e.g. the products’ liquidity, leverage and diversification.

AssetQ delivers exactly what advisers need – the means to swiftly understand the features of the products they recommend so that clients’ needs and risks are matched in a consistent, audited and FCA compliant manner.