Today FMA issued a guidance note on Discretionary Investment Management Services (DIMS) for Authorised Financial Advisers (AFAs) who are licensed to provide DIMS, and others providing ‘custody’ or broking services.
In July a consultation draft was released and since then we have received and reviewed submissions and held face to face sessions with industry representatives to discuss practical aspects of the guidance note. Thank you to all who took the time to make submissions and take part.
The consultation process highlighted for us the wide range of DIMS practices in the market. Therefore while we are issuing this guidance now, we see this as only part of our on-going dialogue with AFAs about the services they offer, their understanding of the objectives of adviser obligations and how we can help with this, and lastly, how we can help AFAs apply the guidance in a way that assists their clients and their businesses.
To this end, we want to ensure we remain abreast of the different types of services being offered and the associated challenges, so please continue to talk to us about this. We anticipate we will need to revise this guidance note once the legislative changes come into effect in 2014. With that in mind, we will be interested in understanding any further refinements or changes that AFAs consider could helpfully be made at that time.
As a result of the feedback, we have made changes to the consultation version and we encourage all AFAs authorised for DIMS to carefully review the final guidance note.
The key changes are:
• Clarification that the guidance is for AFAs, although it may be helpful for other DIMS providers and brokers
• Clarification that the guidance articulates FMA’s expectations for AFAs providing DIMS currently, it does not change the legal requirements of providers. However, given the significant changes ahead as a result of the Financial Markets Conduct Act 2013 the guidance note contains information for AFAs to signal what is coming next year and how to start getting ready.
• Refinements to the examples of DIMS including a new example of what is not DIMS at the AFA level
• Amendments to reflect that the client classification obligations only apply in respect of wholesale clients, not for retail clients
• Simplification of terminology used when referring to investment authorities and investment mandates to avoid confusion
• Removal of the reference to a requirement for a client to contract directly with a platform provider as this does not occur in the market generally
• Refinement to make it clear that FMA expect advisers to use their professional judgment where there are material or adverse changes to a portfolio and where preparing their investment authorities
• Clarification of the due diligence requirements when selecting brokers
• Refinement to the requirements around documentation where investment authorities are changed
• Amendment to require AFAs to make inquiries to explain a third party valuation to the client rather than adjusting a valuation
• Amendment to require AFAs to explain the effect of an investment authority to a client in the event of sickness or incapacity, rather than requiring alternative arrangements to be in place.
Changes ahead for all DIMS Providers
The Financial Markets Conduct Act 2013 and associated Financial Adviser Regulations, due to come into force from 1 April 2014, will bring about significant changes. Provision of class DIMS will require a licence, and while AFAs will be able to continue to provide personalised DIMS, there will be additional obligations. The guidance is intended to encourage AFAs providing personalised DIMS to start thinking ahead and to get ready to comply with the new requirements.
We will provide more information about these changes over the next few weeks and months as the content of the regulations start to develop and the requirements become clear. However, if you have specific questions now please feel free to talk to us via our website or contact us on 0800 434 567 or use our online enquiries/question form to ask us a question or talk to your professional body.
Please also check our website for updates.