Last week an article in FP Today, the daily news website for financial planners, paraplanners and wealth managers, caught my eye. It relates to a warning issued by the Personal Finance Society and the urgent need for financial advisers and planners to “review their discretionary investment management agreements amid fears that thousands may be working with inadequate terms” – particularly key due to the new MiFID II regulations due to come into force in January 2018.

The article features a scary statistic: during a series of seminars last year, run by the independent due diligence consultancy Diminimis, less than 2% of advisers admitted to reading the intermediary agreements they had signed with their selected discretionary managers (DIM/DFM). MiFID II requires that client agreements provide legal certainty to enable clients to understand the nature of the services provided.

As the majority of financial advisers and planners are unlikely to have their own discretionary permissions for managing investments and therefore rely on third parties to deliver investment solutions, it’s essential that the nature of the relationship is understood by both parties.

According to work carried out by the Personal Finance Society and Diminimis, it’s clear that some advice firms are relying on assumptions rather than fact. In this scenario, it’s the advisers/planners who are at risk should clients believe they have a case to bring about investment advice not meeting their requirements.

It may be holiday season but any advisers/planners who haven’t checked the fine print on their investment management agreements should be anything but relaxed!

Dave Chessell

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