New Model Adviser - For professional financial planners

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.
6267.07 -43 0.68% 04:35

FSA warns of mis-selling risk over DFM suitability

37 comments
FSA warns of mis-selling risk over DFM suitability

The Financial Services Authority (FSA) has warned advisers who outsource investment of a mis-selling risk due to mismatches in the risk profiles of clients and the portfolios they are placed in.

FSA technical specialist Rory Percival said it was insufficient for an adviser to place a client judged as cautious into a discretionary fund manager’s cautious portfolio without further analysis.

'The obvious area of concern is risk profiling and matching that with an investment solution, ' he said. 'This mismatch could result in mis-selling on your hands.'

He said that suitability checks and risk profiling needed to be carried out by either the DFM or the adviser.

'Both the DFM and the adviser have suitability obligations to the same client,' he said. 'But it needs to be clear who is doing what.'

He added the regulator would be focusing on disclosure agreements provided by advisers using a DFM as part of its thematic review of adviser charging this year.

He said the FSA would not be judging whether advisers’ propositions represented ‘value for money’ but that charges were properly disclosed.

'The only person who can decide that is the client,' he said. 'And for a client to do make that judgement, they need to be clear about what service they are getting and how much it will cost. We have specific disclosure rules on adviser charging so disclosure becomes pre-eminently important.'

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.