Questions asked about DIMS
More than 1300 of the almost 2000 authorised financial advisers in this country have indicated they provide discretionary investment management services (DIMS), which the Financial Markets Authority has its eye on.
Friday, March 15th 2013, 6:00AM 
6 Comments
by Niko Kloeten
It is surveying advisers who are licenced to provide DIMS in the wake of the collapse of Ross Asset Management, which highlighted it as an area of risk.
Although more than 1300 advisers ticked the box for DIMS when applying for authorisation, it is not known how many of them are actually operating a DIMS service.
The survey asks DIMS operators a number of questions about their business, including how many staff they have, the size of their funds under management and whether they use a platform.
institute of Financial Advisers president Nigel Tate said it was a useful exercise that would identify “red flags” that the FMA could follow up on, such as having a very small number of staff managing a large amount of money, as was the case with RAM.
“Obviously there is knowledge and skill but you have to have the capacity to do it. If you have $100 million under management and only one staff it should set off some alarm bells,” he said.
Tate said there should have been a question about whether advisers invest through managed funds or invest their clients’ money directly in individual assets as RAM did.
“My gut feeling is you can probably count the number of practitioners that do that on your fingers and toes; there wouldn’t be more than 10-20 throughout the country. That’s where risk should be identified,” he said.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Comments from our readers
Regards
Brent
However, I agree with you in regard to Nigel's numbers being on the light side.
Lets hope the FMA continue to focus on the suitability of process rather than product.
I agree with Brent Sheather: irrespective of the number of holdings, advisers picking their own stocks is an accident waiting to happen
You can't hide behind Monte Carlo models. If you have not put clients first you are going down big time.
Must say when I read this statement from the FMA I thought...yes !!!
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DIMS are a big part of the NZ investment landscape. You only have to grab the annual report for any listed security and have a look at the custodial and nominee accounts to understand this.
Annual reports are filled with the following information about this practice, like:
* Custodial Services Limited (Craigs IP's clients holding direct shares and bonds that their advisers have recommended for them).
* FNZ Custodians Limited (Direct holdings of all of the different adviser groups' clients using the FNZ wrap platform).
* Forsyth Barr Nominees (Self explanatory).
* Investment Custodial Services Limited (These are the direct holdings of all of the advisers who use Aegis).
And this is to name but a few.
My pick is that many adviser groups recommend direct investments in fixed interest securities and also direct investment in NZ shares to their clients. The thing that probably varies is how much discretion the advisers have in terms of selecting the individual securities, which in many large groups cases probably still gives a lot of the discretion to the client's individual adviser.
For an example of how big this is grab the annual report for Rabo Capital Securities Limited. The custodial and nominee accounts aren't investment funds like PIEs, they are individual clients of advisers who have invested directly in this security. The nominees and custodial services are the platforms enabling the adviser groups to report on their DIMs. The good thing about these platforms is that they provide decent accounting type reports for clients, plus proper custody arrangements (with the later being something that Mr Ross didn't seem to have).
My pick is that the FMA has made an assumption that most advisers are using managed funds like PIEs. While the use of PIE type funds is on the increase, many advisers still use direct assets, which I am picking is then classified as being a DIMs service. In this case, the people making the stock selection decisions mum and dad Kiwi investors are often advisers (AFAs), as opposed to fund managers like Milford or Harbour.
I think that if 1,300 advisers said they were offering DIMs, then you can assume that there are 1,300 advisers offering DIMs.