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7IM: Third party model portfolios threatened by FSA rules
by Michelle Abrego on May 21, 2012 at 14:20
The Financial Services Authority (FSA) needs to provide clarity over how agreements between discretionary fund managers (DFM), advisers, and their clients should be structured to help IFAs avoid falling foul of proposed regulation, according to Seven Investment Management boss Tom Sheridan.
Sheridan, chief executive of 7IM, said that under the FSA’s paper on centralised investment propositions (CIPs) if an adviser puts a client in a DFM-provided model portfolio they need either discretionary authority or the client needs to sign an agreement with the DFM.
‘The implication is if you don’t do that, come 1 January next year, model portfolios [provided by third parties] are dead,’ he said. ‘The concern the FSA has is that advisers are putting clients in model portfolios and there are changes being made to those portfolios without the client agreeing to them. The FSA might insist that the discretionary manager knows the client.’
Sheridan said he understood that IFAs might be uncomfortable with DFMs knowing their clients, but said the regulator must provide clarity over how agreements between DFMs, advisers, and client were structured.
‘The DFM still does not have a real relationship with the underlying client and is that a point the FSA will balk at? Can you tell us please, FSA? Because we think these models are a good thing. We are happy as DFMs to sign up [clients] and keep the portfolio within their level of risk, we don’t know the underlying client and the fact is that the practices we deal with don’t want us to.’
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