The guide, produced by adviser mentoring firm Diminimis, clarifies the legal and regulatory requirements that need to be met by both a financial adviser and any discretionary investment service they choose to work with.
It warns if a financial adviser acts outside the authority given to them by the advisory agreement they have in place, the client and the discretionary investment manager could each make a claim for compensation against the adviser.
How to produce an agreement that does not leave financial advisers liable to compensation bills from both the discretionary investment service and their client is also explained in the guide.
Keith Richards, chief executive of the Personal Finance Society, said: “Any financial adviser who has signed an intermediary agreement with a DIM/DFM, based on the agent as client rule, but has not read and understood the terms and checked their client agreements could have left themselves vulnerable to future compensation claims.
“As with any complaint, who is on the hook depends on how the regulatory and contractual obligations are set up.
“The regulatory requirement is that a recommendation or decision to trade is suitable for the client.
“Where there is a direct contractual relationship between the adviser and client or the DIM and client, the responsible party is easy to identify.
“Entering into an agreement to act as agent for the client muddies this water.
“By reading this guide we hope advisers will be clear on what their responsibilities are when they utilise discretionary investment services.”
David Gurr, founding director of Diminimis, said “Our work with adviser firms suggests there is often a mismatch between what the adviser understands they are responsible for when using the services of a discretionary investment manager and what the actual situation is, often leaving the adviser in an untenable situation.
“The aim of this guide is to give clarity to this little understood aspect of the adviser/DIM relationship.”
The guide can be found here: https://www.thepfs.org/agentasclientguide/