Good Practice Guide - Personal Finance Society

17 Pages·2015·0.14 MB·English

Good
Practice
In association
with
Guide
FEBRUARY 2015
Adviser research & due
diligence on discretionary
investment managers
In responding to members’ requests, the PFS has commissioned
this Good Practice Guide to help Adviser Firms develop their
approach to due diligence (DD) on Discretionary Investment
Managers (DIM’s) and the service they provide.
The aim of this Guide is to assist member frms of all sizes
address a challenging topic in an effcient and client-centric
manner.
Foreword 2
Section 1 – Introduction 3
Section 2 – The Issues 5
Section 3 – The Good Practice Guide 8
This Good Practice Guide is the frst in a planned series of guides that are being developed for members in collaboration with experts
in their feld and the Financial Conduct Authority.
Good Practice Guide
Foreword
For many advisory frms the run up to RDR involved a signifcant
amount of soul searching and it was a catalyst for many to question,
and focus, on the core components of their value proposition. One
conclusion for many frms was that investment management was not
an area where they had the necessary skills, experience or capacity
in-house. Discretionary Investment Management (DIM) became a buzz
word and a plethora of new DIM frms entered the market to court
advisers, seeking to entrust considerable sums of their clients wealth.
However, for many advisory frms choosing a DIM partner was a steep
Keith Richards learning curve. In the absence of a well-established due diligence model,
Chief Executive, the Personal some frms struggled to add the layer of additional cost that represented
Finance Society
the best value for money for their clients. There was also a lack of clarity
over contractual relationships in terms of what outsourcing actually
means and the resultant obligations on the adviser frm. Research and
due diligence, especially in relation to DIM, is a key area of attention for
the Regulator.
As with any business partnership a careful audit trail documenting the
research and due diligence steps taken is essential. But don’t forget
that an element of due diligence often boils down to intangibles such
as culture and trust. You need to establish whether the approach of the
discretionary manager is compatible with your own beliefs – is there
a philosophical ft and could you realistically work with the people on
a regular basis? Don’t forget that both the adviser and any DIM both
have suitability obligations to the same client, so it is essential there is
documented clarity over who will be responsible for what. Working with
a DIM does not mean the outsourcing of responsibility or advice liability.
This guide is focused on helping members understand good practice
when conducting research and due diligence on discretionary
investment managers, which I hope you will fnd of value. Don’t forget
that the process is equally applicable to regular reviews.
Good Practice Guide
eS ctio n 1 – tn I roduction
In responding to members’ requests, the PFS has commissioned this Good Practice Guide to help
Adviser Firms develop their approach to due diligence (DD) on Discretionary Investment Managers
(DIM’s) and the service they provide.
When developing and offering services to their clients, it is expected that the same professional
standards are applied by all Adviser Firms, irrespective of size and resource. The aim of this
Guide is to assist member frms of all sizes address a challenging topic in an effcient and client-
centric manner.
A great deal of confusion exists as to the allocation of responsibility between the adviser and DIM
when jointly providing a service to the same client. In part, this may be due to DIMs being brought
into the RDR towards the very end of the consultation phase leading to inconsistencies of approach.
However, there was confusion way before this and Adviser Firms may have a legacy book of business
that has been subject to minimal research and DD on the DIM provider. As long as clients continue
to receive these services, Adviser Firms should ensure they fully understand the basis of the
relationship and their resultant obligations. This guide works with the ‘spirit ‘of RDR and the general
guidance provided by the regulator but it is the application of members’ professionalism, experience
and knowledge of their client requirements that will allow them to develop their own DD process.
At a conference in London, Robert Taylor, Head of Wealth Management & Private Banking Team at the
FCA introduced his speech with the following:
s e u s s i e s e h t g n i k a t e b o t t u b , s i * t c u d n o c t a h w d n a t s r e d n u o t t s u j t o n e r e h e r a e W “
e r a u o y t a h t y a s d n a r a t e h r u o y n o s d n a h r u o y t u p y l l a u t c a n a c u o y t a h t o s d r a o b n o
g n i o g r e v e n s i y e n r u o j t a h t d n a , e l b i s s o p d r a d n a t s t s e h g i h e h t o t g n r i y e h t v e g n i o d
e w o d t a h W . t u o b a g n i k n i h t e b o t e v a h s y a w l a e w g n i h t e m o s s i y e n r u o j t a h T . d n e o t
” ? n o e v o r p m i o t d e e n r t y s u d n i n a s a e w o d t a h W ? r t e e t b o d o t d e e n
eGriB k s i R t c u d n o . C ( ) 4 1 0 2 r e b m e v o N – g n
. s s e n i s u b r u o y f o r a e h t e h t t a n t s e i l c r u o y u t g p n i t . e . i *
Good Practice Guide/February 2015 3
Good Practice Guide
-FF� 1a0d2P� eP�aacPP- 0iauF P/oe/Pd P5b11P� eca0/FcPe2cPd0� 1F�F2/FcP�d/od2Pa� biP�b d2F P0ieu/duF P
Pd PF F2/de1Pe Pd/Pua2/id�b/F P buoPeP d�2dyue2/PF1F�F2/P/aP0ia0FiPuŠ a2cbu/P• e2cPF2 bid2P� 0a d/dF� P
u1dF2/Pab/ua�F �
“Over the coming months and into next year, the subject of
due diligence will continue to be on the agenda and my hope is
the industry generally and participants within the industry will
continue to talk about what good due diligence looks like and to
move everybody forward in that respect”.
(Rory Percival FCA Technical Specialist, October 2013)
yhW D i s os iopm rtatn ?
Fƒ’ PeiFP1aad‰ 2P� e/PcbFPcd1dF� 2uFPF� ueb FPo� F2PF� Pb2cFi/aaP‰ e2PFF� iud FPeP
1d//1FPo� d1FPea� P/aP1aaP‰ e/Po� e/PeiFP/oFPiaa/Pueb F Pa5Pb2 bd/e1� FPecd� uFP• a5P
e11P/oFPue F PF� PoeF� P1aaF‰ cPe/PaF� iP/oFP1e /P5abiPaiPyF� PF� ei P0iF//P� b� uoP
P”“ 0FiPuF2/Pa5Pb2 bd/e1� FPecd� uFPueF� Pe� uP‰ d� /oPa2FPa5P/oiFFPe2 F� i P•
d2ecFb• e/FPcbFPcd1dF� 2uFPe� Pa2FPa5P/oa FP� b- FPcd1dF� 2uFP• aiPe/P1Fe /P
d2ecFb• e/FPcbFPcd1dF� 2uFP• b2cFi0d2 PeP1a/Pa5P/oFPd2udcF2uF Pa5Pui � /e11d FcPid P‰
F� F�• P FF2P� a– bPue2PiF1P� a2P/odicP0ei/P� 0iad� cFi P5aiP5eu/be1Pd25aie� /da2Pb� /P
2a/P5aiPa0d2da2P•� a� bPoeF� P/aPuaF� P/aPa� biPa2� Pd� F�—�
a‡ iP� tFiude� 1PP� GFuo2due1P0• Fude1d /P• P”˜ F• 0/FF� iP€š“”™
Good Practice Guide/February 2015 4
Good Practice Guide
eS ctio n 2 – eh T ius s es
a� 25b da2P0Fi d / Pd2P/oFP0a /PP‡-‡ a� i1cP� GoFiFPd Pua25b da2P�F/F� F2Pec�duFPa2P0Š iacbu/ P• e2cP
cd uiF/da2eiP� d2F� /�F2/Pe� 2e�F�F2/P Š Fi �duF P� • GoFiFPd Pua25b da2PiF1e/d2P� /aP/oFPe001due/da2Pa5PP‡-‡
ec�d FiPuoei�d2P� e2cPd2cF0F2cF2uFPib1F P/aP/oFP5ai�FiP�b/P2a/P/oFP1e//FiP� �ccP/aP/od P/oFPuoe11F2�F P/aP
�a/oPec�d Fi Pe2cP‚• - Pa5P/oFP0FiF22de1P/F2 da2P�F/F� F2Pua�F� iude1Pua2 dcFie/da2 Pe2cPiF1e/da2 od0 P
a2P/oFPa2FPoe2cPe2cPua0� 1de2uFP�d/oPcb/dF P/aPu1dF2/ Pe2cPiF�b1e/da2 Pa2P/oFPa/oFiP� �11P/oF FP
d2�iFcdF2/ PoeF� PuiFe/FcPePua0� 1FP� F/Pa5Pc�2ed� u P5aiP/oFPiF/ed1PF2cPa5P/oFPd2F� /�F2/Pcd /id�b/da2P
uoed2�
2• P0ei/dub1eiP• /oFP�P� e2cPyi � PeiFPd2uiFe d2�1P� e�eiFPa5P• e2cPua2uFi2FcPe�ab/P• /oFP Š bd/e�d1d/P� �e0� •
GoFP1e2�be�FPe� P� 2a/Pe1�e� P�FP0iFud FP�b/P/oFP 0did/Pa5P/oFP�F e�FPd Pu1Fei‘
oƒ’ FiFPePyiP� iF5Fi Pd2F� /F� 2/P F1Fu/da2 P/aPePcd uiF/da2eiP� e� 2eF� iP• a� /oP
/oFPd2/iacbud2P� yiP� e2cP/oFPcd uiF/da2eiP� e� 2eF� F� 2/PyiP� oeF� Pa1� de� /da2 P/aP
F2 biFP/oe/PeP0Fi a2e1PiFuaF� 2ce/da2PaiPePcFud da2P/aP/iecFPd P bd/e1� FP5aiP/oFP
u1dF2/P� GoFPa1� de� /da2 Pa2PFeuoP0ei/P� d� 11PcF0F2cPb0a2P/oFP2e/biFPe2cPF/� F2/Pa5P
/oFPiF 0Fu/dF� P Fid� uFP0iad� cFcP� aŽ /oP0ei/dF P oab1cPF� Pu1FeiPa2P/oFdiPiF 0Fu/dF� P
Fid� uFP• e2cPF2 biFP/oFP� F� F/P/oFPuaiiF 0a2cd2P� bd/ed� 1d/P� a1� de� /da2 P� 5• PFd/oFiP
aiPa� /oP0ei/dF PeiFP2a/Pu1FeiP• /oFiFPd PePid P‰ /oe/Pu1dF2/ Pe� P� iFuFdF� Pb2 bd/e1� FP
ecd� uFPe2ca› iPoeF� P/oFdiP0ai/5a1da Pe� 2eF� cPd2e00ia0ide/F1�—�
P�•� bœ 1P� P•™“”™ r� P• � F d2P� b• d/ed� 1d/P‘� F‡ 01euFF� 2/PbŽ d2F Pe2cP
F� 2/ie1d FcP2• F� /F� 2/PtiauF P• 0eiePP•ž�š 0€ž“
“....clients can beneft from more structured and better researched investments and frms
can beneft from effciencies in the management of risks associated with investment
selection” but the FCA is concerned about ‘shoe-horning’ and additional costs. (FSA July
2012, FG; Assessing Suitability: Replacement Business and Central Investment Process,
para 2.3, p4).
“Both the DIM and adviser have suitability obligations to the same client...
But it needs to be clear who is doing what”.
(Rory Percival, FCA Technical Specialist February 2013)
Good Practice Guide/February 2015 5
Good Practice Guide
ehT Proelb sm
GoFiFPeiFPeP2bF� iPa5Puaa� 2Pd� e00iFoF2 da2 P• ua25b da2 Pe2cPiFb� 1e/aiP� /F2 da2 Pd2P01e‘�
“DIM” not “DFM” – service not product
PŸ P•Ž¡� P¢ bd/ed� 1d/P� a1� de� /da2 Pa2PP‚•- cFud da2 P/aP/iecFPeiFPb� uoP/oFP eF� Pe P/oa FPa2Pe2Pecd� Fi • P
0Fi a2e1PiFuaF� 2ce/da2 e› cd� uF
PŸ P� iFe� d2Pua2uFi2FcPea� b/Pu1dF2/ P5e11d2P� F� /F� F2P/a� P /aa1 PP£ dF� P� /oFP bd/ed� 1d/P� e� 0
PŸ • P/oFPP‚•- 0iad� cd2P� eP Fid� uFP/aP/oFPu1dF2/P• eP Fid� uFP/aP/oFPecd� FiPaiPeiFP/oFP� /oFPd2F� /F� 2/P
e� 2eF� iPa5PeP0iacbu/¤
Referral, not “outsourcing”
PŸ GoFPuaa� 2P0ei1e2uFPd PF� iP� d� 1Fecd2P� F‡ 5Fiie1P/aPePP‚•- d PieiF1P� a’ b/ abiud2P•—� /od Pd Pd0� a d1� FP
b21F P/oFPecd� FiPoe Pe�Š 2ed� 2P� d2F� /F� 2/P0Fid� da2 �•
Independent v Restricted
PŸ P•Ž¡�›‡-‡ P�™�¥ e001dF P/aP0Fi a2e1PiFuaF� 2ce/da2 e› cd� uFPa2PF‡Š /ed1P2• F� /F� 2/Ptiacbu/ P• a21P•�
2a/PiF5Fiie1P/aPePP‚•- b 21F PePa� cF1P0ai/5a1daPd P0iFcdu/e1� FP buoP/oe/P/oFPecd� FiPd PF55Fu/dF� 1P�
iFuaF� 2cd2P� 0ei/dub1eiP5b2c Pa55FiFcPP� P€‚•- P�•� r� Pbœ 2FPP™“”™ 2•Š cF0F2cF2/Pe2cPiF /idu/FcP
ecd� uFP• 2•’ cF0F2cF2uFPrbdce2uF€—
PŸ 2• cF0F2cF2uFPrbdce2uFPua2yi � PiF5Fiie1P/aPePP‚•- caF P2a/P2FFcP/aPF� Pe� FcPa2Pua0� iFoF2 dF� PaiP5ediP
e2e1 � d Pa5P/oFPe� iF‰ /P� aˆ’ F� F� iP• /oFPyiP� oab1cPb2cFi/eF‰ P b5yudF2/PcbFPcd1dF� 2uFPa2PePP‚•- F� 5aiFP
iFuaF� 2cd2P� d/P/aPePu1dF2/P• aP/oe/Pd/Pue2Pe� F‰ PePb† cF� 2/Pea� b/Po� F/oFiPd/Pd P/oFPido� /P a1b/da2P5aiP
/oFPu1dF2/P�— aˆ F� F� iP• /oFPP� oe P oa2� Pd� 11d2P� /aPiF1P� a2P/oFP Š 0did/Pa5PP•‡-‡ e2cPa� bP oab1cPe001P� a� biP
0ia5F da2e1Pb† cF� 2/Pa2PoaP� d� cFPa� biPiF FeiuoP oab1cPF/� F2cPd2/aP/oFPP‚•- e� iF‰ /�
Adviser charge
PŸ 2¡ a� d2P� Fid� uF P5aiPa2a� d2P� uoeiF� ¦�
Provider/Intermediary Agreements v ‘model terms of business’
PŸ a� 2d§ u/ PF� /F� F2Pu1dF2/ • PF� /Pd2/FiF / Pe2cPuaF� iude1PiF1e/da2 od0 Pe2cPd2/FiF / Pb� /PF� P
e� 2eF� c
PŸ t•� Pb� dce2uFPiF5Fi P/aP/oiFFPi� aecP /ibu/biF Pyi � Pb FPo� F2Pa� id‰ 2P� d� /oP/odicP0ei/P� ‚•- Pc diFu/P
ua2/ieu/be1PiF1e/da2 od0PF� /F� F2PP‚•- e2cPu1dF2/P• ecd� FiPcF1Fe� /F a› b/ abiuF Pe� 2eF� F� 2/P/aPP•‚•-
aiPua2/ieu/PF� /F� F2PP‚•- e2cPecd� FiPe PeF� 2/Pa5Pu1dF2/€
PŸ bŽ /PeŠ F� 2/Pe Pu1dF2/P• eiie2F� F� 2/Pb2cFiPP•Ž¡� Pš�™ d Pb2ca2FPd5PP‚•- ei� FF Pd� /oP/oFPecd� FiPd2Pi� d/d2P�
/aP/iFe/Pd2F� /aiPe Pd/ Pu1dF2/
PŸ F– /PePcdiFu/Pu1dF2/Pei� FFF� 2/Pd PiFb• diFcPb2cFiPP•Ž¡� P�ž � P/oFPP•‚•- d� /oP/oFPecd� FiP• oe P bd/ed� 1d/P�
a1� de� /da2 P• d/Pa5/F2PeuuF0/ P/oFPu1dF2/Pe Pd/ Pa2� �
Risk (mis)matching
PŸ d‡ P‰ 0iay1d2P� /aa1 P5aiPP�–¨ P� ecd� Fi P5aiPy2e2ude1P01e22d2P� 0bi0a F PP£ FF� 2Pd5Pua2 d /F2/P
/oiabo� ab/P• eiFPa21P� 0ei/Pa5P/oFP Fid� uF
PŸ 5• Pd2ua2 d /F2/P• /oFPG� P‡ d� 11P2a/Pe� /uoP/oFPid P‰ ie/d2 � Pa5P/oFP •‚•- P bd/FPa5Pa� cF1P0ai/5a1da
PŸ Goe/Pe� P� /oF2PF� Pib2PP� d2F� /F� 2/Pe� 2eF� i Pa 5/F2Pe1a2 � dcFPb2d/d FcP5b2c P€ d� /oP1d//1FPiFe� icP5aiP
/oFPd2cdd� cbe1Pd2F� /aiP• e2cP0a/F2/de11P� b d2P� b2cFi1d� 2P� 5b2c Pd� /oPe2a/oFiPid P‰ ie/d2P� e1/aF� /oFi
PŸ GoFPecd� FiPd PiF 0a2 d1� FP5aiP/oFPb FPa5Pe2P� /Š aa1 P• d2P/oFP0iad� da2Pa5P/oFdiP Fid� uFP� /•’ Pd Pd0� ai/e2/P
/aPodo� 1do� /P/oe/P/oFPyi � P0iad� cd2P� /oFPecd� uFPaiPcd uiF/da2eiP� e� 2eF� F� 2/PiFe� d2PiF 0a2 d1� FP5aiP
e F d2P� bd/ed� 1d/P•� FF� 2Pd5P/oFP� b FPeP/aa1P0iad� cFcPP� eP/odicP0ei/P� e P0ei/Pa5Pe F d2P� /oFPid P‰ eP
u1dF2/Pd Pd� 11d2P� e2cPe1� FP/aP/eF‰ P— r� P• � F d2P� b• d/ed� 1d/P•� P“�© e‚ iuoP�€“”™
P•¡�¦ ib1d2P•� i‚ P� Pœ ee� d2 /PP�Ž•ˆ F‡ 5P‘ P•ž”ž˜“š«ª‡- o� FiFPP�Ž•ˆ aicFiFcP/aPiF0eP� /ied1P5FFu› ad� da2P• d� /oPd2/FiF /Pe2cPeP0eF� 2/P
5aiPcd /iF Pueb FcP• F� ueb FP/oFP� cdcP2a/P0iad� cFPe2Pa2a� d2P� Fid� uFPo� duoP/oFPu1dF2/PoecPF0� Fu/FcP5iaP� ab/ F/
Good Practice Guide/February 2015 6
Good Practice Guide
ehT iL aib il ties
P�Ž F� //d2P� d/Pi� a2P•� yi � PF0� a FP/oF � F1F� P/aPu1ed � Pe2cPua0� 1ed2/ Po� F2Pd2F� /F� 2/ PcaP2a/P
0Fi5aiP� GoFP/0� F Pe2cP abiuF Pa5P/oFP1ded� 1d/dF Pe� P� bi0id FP/oFPyi � P• e2cP/oFdiPtP• d2 biFi �
PŸ oƒ F2P/oFPP‚•- eca0/ P/oFPu1dF2/PcdiFu/PP£ /oFiFP� e 00eiF2/1P€� cFi… d d‰ 2P� /oFPecd� Fi • Pb� d2F PP£ P
d/Pe� P� /ib1� FP/aPcd uoeiF� Pd/ Pcb/dF P/aP/oFPd2cdd� cbe1Pd2F� /aiP/aPF2 biFPeP bd/e1� FP0ai/5a1daPe2cP
/ie2 eu/da2 P• F 0Fude11P� o� F2Pib22d2P� ePa� cF1P0ai/5a1daP Fid� uFP� 2� Pei� FFF� 2/PP� o� duoP/oFPecd� FiP
/eF‰ PuFi/ed2PiF 0a2 dd� 1d/dF Pe� P� 2a/PF� PF55Fu/dF� Pd2PiF 0a2cd2P� /aPua0� 1ed2/ PP� e2Pd2F� /aiP� 5• P/oFP
•‚•- P0Fi5aie� 2uFPcia0 P• d/Puab1cP5euFPePb�Š 1P‰ ua0� 1ed2/P• 5iaP� e11P/oFPecd� Fi • Pu1dF2/ �
PŸ oƒ F2P/oFPecd� FiPeu/ Pe Pe2PeF� 2/Pa5P/oFPu1dF2/P• edd� 2P� /aPF‰ F0Pua2/ia1Pa5P/oFPe11d… 0� ai/e2/Pu1dF2/P
iF1e/da2 od0P• d/Pd� 11P /ib1� FP/aPcd uoeiF� Pd/ Pcb/dF P/aPF2 biFP/oFP bd/ed� 1d/P� a5Po� e/Pd P• P� cFy2d/da2P• eP
cd uiF/da2eiP� Fid� uFP/aPF� P0iad� cFcPP� /oFPP�‚•- 5• P/oFPP‚•- ei� FF Pd2Pi� d/d2P� d� /oP/oFPecd� FiP/aP/iFe/P
/oFPd2F� /aiPe Pd/ Pu1dF2/P• /oFPeŠ F� 2/Pe Pu1dF2/P• a� cF1Pi� Fe ‰ Pca2� Pe2cP/oFPP‚•- d� 11Py2cPd/ F15PcdiFu/1P�
iF 0a2 d1� FP5aiPF2 bid2P� /oFP bd/ed� 1d/P� a5Pd/ P Fid� uFP/aPePu1dF2/Pd/Pe� P� 2FF� iPoeF� PF� /�
ehT oS ul tion
1� 1P/od Pd2Fd� /e1� P� 1Fec P/aPua25b da2Pe2cPb2uFi/ed2/P� F� /F� F2PP•‚•- ecd� FiPe2cPu1dF2/P� GoFP2FFcP/aP
1aaP‰ F� a� 2cP/oFP •‚•- P0iaa� /da2e1Pe� /Fide1Pd 2u1bcd2P� d2o… ab FPcbFPcd1dF� 2uFP0eu ‰ P€ d PF F2/de1P• /ob P
F2 bid2P� GFi � Pa5PbŽ d2F Pi� FFF� 2/ PG P€�Ž¡ /Fi � PeiFPu1FeiP• uaiiFu/Pe2cPb2cFi /aacPP� e11P� 2• P/bi2P•
/od P oab1cPcFa� 2 /ie/FPu1FeiPiF 0a2 dd� 1d/P� 5aiP bd/ed� 1d/P� e2cPP�–¨ e� iF5b1Pe2e1 � d Pe2cP/oaiabo� P
b2cFi /e2cd2P� a5P/oFPP‚•- 0ia0a d/da2 P• e� uF‰ cPb0PP� caubF� 2/e/da2Po� duoPd Py/P5aiP0bi0a FPd P/oFP
e � a1b/FPd� 2db� P� iFb• diFcP� 1� dF2/ Pe2cP/oFPiFb� 1e/aiP• d� 11P2a/PF0� Fu/Pe2/� od2P� 1F �
Good Practice Guide/February 2015 7
Good Practice Guide
eS ctio n 3 –
eh T Good Practice Guide
ehT Proces
God Pb� dcFPiFuaF� 2c P/oFP5a11ad� 2P� 0iauF Pe Pa� acP0ieu/duFP‘
P�“ • /e1� d oPa– biPi� d/Fide
P eP� 2¨ aP� a� biPu1dF2/ • Pe2cPa� biPa2� PiFb• diFF� 2/
P P� 2¬ cFi /e2cPa� biPd� i •� Pd2F� /F� 2/Pue0ed� 1d/dF Pe2cPiF abiuF �
P uP� 2¬ cFi /e2cP/oFPe� ide1� F Pd2P/oFPP‚•- e� iF‰ /
P P dP€ /• 1� FPa5PF‡ 1e/da2 od0
P P ddP€ GoFPie2F� Pa5P0¡ Fie/d2P� i� eF� a� i ‰
P P ddd2•P€ F� /F� 2/PtiauF Pd- 55FiF2/de/ai
P P dP€� a– biP0• FudyuPF‡ b• diFF� 2/
P�™ F‡ FeiuoP
P�˜ 2� e1 � d
P�š GoFP2• /e2d� 1� F
P�© F• 1Fu/da2F‡› ua2yie� /da2
P�¥ a- ubF� 2/P/oFPi� FFF� 2/
P�« e� uecFPca2� P/oiabo� Pa� /oPaie� 2d e/da2 Pe2cP/aPu1dF2/
P�ž 2¡ a� d2P� � /F � PPŒ ua2/ia1
.1 tsE ailb hs oY ur rC iteria
GoFPF‡ b� 1e/aiP� rbdcFP• G’ oFPF‡ 0a2 dd� 1d/dF Pa5Ptiad� cFi Pe2cPd- /idb� /ai P5aiP/oFPe� diPGiFe/F� 2/Pa5P
b� /aF� i P— P� eˆ 2ca� aP•‰ t‡ tP•- • bFcPb2cFiPF• u/da2PP�¢˜“ a5P/oFPd� 2e2ude1PF• id� uF Pe2cPe‚ iF‰ / P
u� /PP•”™ F55Fu/dF� P5iaP� P€«”™ F/ Pab/P/oFPiFb� 1e/ai • P5ieF� a� iP‰ a5PoaP� /a� Paie� 2d e/da2 PcF1dF� iPeP
Fid� uFPa iPeP0iacbu/P€ /aPe2PF2cPu1dF2/P� P� tid2ud01F Pe001P� /aPe11Peb/oaid FcPyi � Pb� /P/oFPiFb� 1e/ai • P
rbdcFP1aa ‰ P0ide� id1P� e/‘
Principle 2PP� yiP� b� /Pua2cbu/Pd/ Pb� d2F Pd� /oPcbFP d‰ 11P• ueiFPe2cPcd1dF� 2uF
Principle 3PP� yPiP� b� /P/eF‰ PiFe a2e1� FPueiFP/aPaie� 2d FPe2cPua2/ia1Pd/ Pe55edi PiF 0a2 d1� P� e2cP
F55Fu/dF� 1P•� d� /oPecFb• e/FPid P‰ e� 2eF� F� 2/P � /F �
Principle 6PP� yiP� b� /P0eP� cbFPiFe� icP/aP/oFPd2/FiF / Pa5Pd/ Pub /aF� i Pe2cP/iFe/P/oFP� 5edi1�
Principle 7PP� yPiP� b� /P0eP� cbFPiFe� icP/aP/oFPd25aie� /da2P2FFc Pa5Pd/ Pu1dF2/ P• e2cPuab� 2due/FP
d25aie� /da2P/aP/oFP� d2PePe� P� o� duoPd Pu1FeiP• 5ediPe2cP2a/Pd� 1Fecd2�
GoFPcF d2� Pe2cPcF1dF� iP� a5P/oFP Fid� uFP/oFP� a55FiP/aPu1dF2/ Pd P/oFPiF 0a2 dd� 1d/P� a5P/oFPecd� FiP� 2• d� /d2P�
ePP‚•- /aPe d /Pd2PcF1dF� id2P� /oFP Fid� uFPue2PF� PeP F2 d1� FPe00iaeuoPd5Pe2Pecd� FiPd P1aad‰ 2P� /aPF2oe2uFP
/oFdiPd2F� /F� 2/Pa55Fid2P� aˆ F� F� iP• d/Pd P/oFPecd� FiPo� aPb� /PF� Pu1FeiPe/Pab/ F/Pa2Po� e/P/oFP� eiFP
1aad‰ 2P� 5aiPe2cP/oFPa0Fie/da2e1P5ieF� a� iP‰ b0a2Po� duoP/oFP Fid� uFPd P0iad� cFcP� God Pd� 11P1FecP/aPePa� iFP
/ibu/biFcPe00iaeuoP/aPe� iF‰ /PiF FeiuoPe2cP/oFPiF b1/d2P� P- 0iauF P�
Good Practice Guide/February 2015 8
Good Practice Guide
2• P/od PraacPtieu/duFPrbdcFP• F� PcFy2FPb- FPd- 1dF� 2uFPP€- e P‘ T’ he care a reasonable and prudent
person (Adviser Firm) should take before entering into an agreement or a transaction with another party
(the DIM). Gathering detailed, quality information over and above general marketing documentation is
a fundamental part of the research process, in order to identify anything deemed material in the service
or relationship. By using the same DD process systematically, advisers will be equipped to make an
informed decision ensuring all the costs, benefts, known and potential risks are analysed and assessed
against the Adviser Firm’s pre-defned criteria. This will lead to greater confdence in client outcomes
meeting the identifed client needs.”P2• P/od P0iauF P• /oFPecd� FiPue2PP£ /aP/oFPF/� F2/PiFe a2e1� FPP£ iF1P� a2P
5eu/ P0iad� cFcPP� eP/odicP0ei/P� yiP� b� /Pd� 11P2FFcP/aP/F /Pa0d2da2 ¦�
GoFPcFy2d/da2P /ei/ Pd� /oP/oFP0iFd� FP/oe/Pa� bPeiFP1aad‰ 2P� /aPF2/FiPd2/aPe2Pei� FFF� 2/PaiP/ie2 eu/da2P
d� /oPePP�‚•- GoFiF5aiFP• /oFPyi /Pb• F /da2Poe P/aPF� PP£ oƒ ¤�
5• Pa� bPe� 2/Pe 2cPeiFPe1� FP€ /aP0iad� cFPe2Pd2o… ab FPd2F� /F� 2/P a1b/da2P/aP/oFPiFb• diFcP /e2ceicPa5Pa� biP
u1dF2/ P• F0� Fu/e/da2 P• a� bPeiFPb21dF‰ 1P� /aPF� P1aad‰ 2P� /aPd2d� /FPePP‚•- /aPoF10Pa� bP�
F‡ ua2� d d2P� /oFP2FFcP bF� / Pa� bPue2PdcF2/d5P� eiFe Pd� /od2Pa� biPu1dF2/Pd2F� /F� 2/P0ia0a d/da2P/oe/P
d� o� /PF� PF2oe2uFcPd5Pa� bPF� iFP/aPd2d� /FPePP‚•- /aPoF10Pe2cPF� e2 Pa� bPeiFPe1iFecP� a2P/oFPiaecP/aPuiFe/d2P�
e2PF55Fu/dF� PP- 0iauF P� 5¡ Puabi FP• /oFiFPeiFPa/oFiPd2F� /F� 2/P a1b/da2 P/oe/P2FFcP/aPF� Pua2 dcFiFcPe/P
/od P /eF� Pa5P/oFPFF� iud FP• buoPe P/oFPie2F� Pa5P0iacbu/e�… FcP a1b/da2 P� God P0e0FiP2aP� e bF� P/oe/P•
e PePiF b1/Pa5P/od Pd2d/de1Pua2 dcFie/da2P• /oFPc� d� FiPd� iP� oe PcFudcFcP/aPua2 dcFiPePe�…‚•- FcP a1b/da2�
1a. Know your client’s and your own requirements
/• Pd Pe00iFude/FcP/oe/Pe� 2P� u1dF2/ P• d5P2a/Pe11P• uaF� P/aPa� bP5aiPecd� uFPF� ueb FP/oFP� eiFP2a/Pu1FeiPd2Po� e/P
/oFdiPiFb• diFF� 2/ PeiFP� aˆ F� F� iP• 2‰ a1� FcF� Pa5Pa� biPFd� /d2P� u1dF2/ Pe2cPa� biPe00iaeuoP/aPy2e2ude1P
01e22d2P� d� 11Pe11aP� a� bP/aPei/dub1e/FPuid/FideP/oe/Pd� 11Pb� dcFPa� bPd2PF� F/d2P� a� biPu1dF2/ • PiFb• diFF� 2/ P�
a– biPu1dF2/P FF� 2/e/da2PFF� iud FPe� P� F� 11Pe11aP� a� bP/aPdcF2/d5P� i� ab0d2 � Pa5Pu1dF2/ Pd� /oP 0FudyuP
d2F� /F� 2/P2FFc �
e�• 0� 1F Pd� o� /Pd2u1bcFPP£ ePodo� 1P� 0Fi a2e1Pd2F� /F� 2/P Fid� uFP• ua2ycF2uFPd2PePF� 112‰… a2� Py2e2ude1P
d2 /d/b/da2P• cFa� 2 /ie1� FPe� 1bFP• aiPeuuF P/aP 0Fude1d /Pd2F� /F� 2/PeiFe �
e�• 0� 1F Pa5PeiFe Pa� biPyiP� d� o� /Pua2 dcFiPo� F2Pe d‰ 2P� “What am I looking to achieve by working
with a DIM?”Pe� P� d2u1bcFPP£ e11Pd2F� /F� 2/Pid P‰ e aude/FcPd� /oPib22d2P� 0ai/5a1da P/aP d/Pd� /oP/oFPP•‚•-
ua2 d /F2uP� a5P2e/da2e1P Fid� uFPeuia Pe11Pa� biPa5yuF P• eP /ia2P� iF1e/da2 od0Pd� /oP F2daiP0Fi a22F1Pe/P/oFP
P‚•- e2cP aPa2�
1b. Understand your frm’s investment capabilities and resources
P� a� i/oo� d1FPFF� iud FPd Pe2Pe00ied e1Pa5Pa� biPyi •� Pd2F� /F� 2/P /iF2/� o Pe2cPF� e2‰ F F P� God Pd P
d0� ai/e2/Pe Pd/PoF10 PF /e1� d oP/oFP1FF� 1Pa5Pua0� F/F2uP� e2cPiF abiuFPee� d1e1� FP/aPib2P/oFPa2a� d2P�
� /F � Pe2cPua2/ia1 PiFb• diFcPo� F2Pa� id‰ 2P� d� /oPePP‚•- d 2Pu“ Pd dP€ F� 1aP� F� P1aaP‰ e/Pcd55FiF2/P
5ieF� a� i ‰ Pee� d1e1� FP�€ GoFPi� Fe/FiPa� biPyi •� Pd2a� 1F� F� 2/Pa2PF� oe15Pa5P/oFPu1dF2/P• /oFPa� iFP
iF 0a2 dd� 1d/P� /e � Pd� /oPa� biPyiP� e2cP/oFPi� Fe/FiP/oFP2FFcP5aiP 0FudyuP d‰ 11 Pe2cPF0� FidF2uFP�
1� /Fi2e/dF� 1P•� /oFPa� iFPiF 0a2 dd� 1d/P� 01euFcPb0a2P/oFPP‚•- /oFPa� iFP /iedo� /5aie� icP/oFPa2a� d2P�
a� 2d/aid2P� ue2PF� uaF� �
P•Ž¡�¦ P¥�š�™ P€™ P� yiP� d� 11PF� P/eF‰ 2P/aPF� Pd2Pua0� 1de2uFPd� /oPe2P� ib1FPd2P/od P abiuFa� aP‰ /oe/PiFb• diF Pd/P/aPa/� ed2Pd25aie� /da2P/aP/oFP
F/� F2/Pd/Pue2P oaP� d/Pe� PiFe a2e1� FP5aiPd/P/aPiF1P� a2Pd25aie� /da2P0iad� cFcP/aPd/Pd2Pi� d/d2P� P� e2a/oFiP0Fi a2�
P•Ž¡� P«�š�™ P€“ 2• PiF1d� 2P� a2PP•Ž¡� P¥�š�™ P•‡ ePyiP� oab1cP/eF‰ PiFe a2e1� FP /F0 P/aPF /e1� d oP/oe/P/oFPa/oFiP0Fi a2P0iad� cd2P� i� d//F2P
d25aie� /da2Pd P2a/Pua22Fu/FcPd� /oP/oFPyiP� e2cPd Pua0� F/F2/P/aP0iad� cFP/oFPd25aie� /da2�
Good Practice Guide/February 2015 9
Good Practice Guide
c… r† 0‰ eoiu t0er Port� idto�• urd0r PorFbyrytio• r
These can now be considered to help identify the most appropriate solution;
dr- P‹ oru o�• r1r� 1‡ id• 0r� iot� d10uPdr� 1• r� o� or� dur1• u rti� 1i� dt oro• o‡ o0r1• i� riŠ r• t0er1• i� rcP1uo0r
Fbyu r- d0r1ieoir 1reod� o� ir Poruoid� cor 1r1• i� rcd� o0 u -
• The relationship and service is an integral part of your overall client service offering with the DIM
personnel attending client meetings, both initial and ongoing reviews. The client will see this as a
partnership, with the DIM offering a specialist investment service.
Or
• The DIM is simply a provider of an investment solution with support to be called upon as and when
required.
Additionally, do you have any other specifc requirements you may have when working with your chosen
DIM(s)?
ddr- P‹ oro�Œ it d0r� 5ito• 1‡ ir†• P‹ durdurcid dctr� turd rd‡ r� edc t or Poriou � t0 r1d�• t� d10urt0er
iou1� 0udd• d� dour1r� 1• Prt� i dou
By identifying and agreeing your frm’s and the chosen DIM(s) respective suitability obligations on a
‘suitability matrix’ (see overleaf) arrangements and terms of business can be put in place to ensure
there is no ‘suitability gap’.
In the market, there are variations on each of the models outlined below. Which one is right for your
frm will depend upon a number of factors including your identifed requirements and the strength and
ability of your in-house team to provide the necessary systems and controls required. If you agree the
DIM can rely upon your frm for the provision of client information, do not be surprised if the DIM wishes
to conduct a DD service on your frm. This is good business practice.
Good Practice Guide/February 2015 01