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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.