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At whose discretion

Choosing a discretionary fund manager is far from easy. Fraser Donaldson at Defaqto explains how to carry out due diligence that meets the regulator’s expectations – and suits clients needs.

Suitability lies at the heart of everything that financial advisers do for their clients and selecting a discretionary fund manager (DFM) is no different. Clients’ interests must come first at every step of the process, starting with the rationale for working with a DFM and continuing throughout the due diligence process used to select a particular firm.

As the Financial Conduct Authority (FCA) thematic review in March 2014 (TR14/1 Supervising Retail Advice: Delivering Independent Advice) said: “We expect firms to carry out due diligence on the whole of market to identify the solution(s) that are in the client’s best interests, then conduct detailed due diligence on the recommended solution.” The due diligence process does not stop with the choice of a manager. Both the adviser and the DFM have ongoing obligations, and liability, for ensuring that the recommended investment solution is suitable for the client. The adviser should also set clear key performance indicators, based on client needs and required outcomes, for holding the DFM to account.