DIMS warning

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Advisers have been given a warning about how they handle the termination of discretionary investment management portfolios.

Thursday, June 27th 2013, 6:30AM 1 Comment

by Susan Edmunds

It comes after a Financial Markets Authority monitoring project earlier this year, which looked at financial advisers licensed to provide discretionary investment management services.

Less than half the 1300 financial advisers licensed to provide DIMS actually did.

DIMS is defined as an arrangement in which an adviser makes buy and sell decisions about a portfolio of investments without referring to the client.

Of those who are providing DIMS, more than half are operating outside a QFE. Six advisers had more than $60 million in DIMS funds under management.

The FMA contacted all AFAs who are licensed to provide DIMS and asked them to confirm whether or not they provided the service. It then requested adviser business statements from a selection of them and conducted phone interviews and visits with a number of advisers.

“A significant number of AFAs who are licensed to provide DIMS advised FMA that they do not currently provide this service to clients and do not expect to do so in the near future. For some advisers, this may have been the result of changes to their advice practice since the licensing regime came into effect under the Financial Advisers Act,” the FMA said.

Some advisers were unsure whether their services included DIMS, the FMA said, and where it was being offered there was no standard service model. Code compliance was variable.

Lloyd Kavanagh, a financial expert at Minter Ellison Rudd Watts, said it was surprising that there was a lack of awareness about DIMS. But he said it was to be expected that few advisers would be offering it. “Handling the assets on which you’re providing advice is a different business from providing the advice.”

One of the concerns highlighted by the FMA was about advisers with clients who wanted to cash up their DIMS portfolios.

The FMA said: “While we appreciate that clients may reasonably ask their advisers for their opinion on whether or not to make withdrawals or cash up, and may choose to retain their investments in their portfolio as a result of their adviser’s recommendation, AFAs must ensure that they are not unduly pressuring or influencing their clients’ decisions.”

It said AFAs should provide reasonable assistance with the closure of a DIMS portfolio, particularly where the assets are not liquid. “We remind AFAs to have a portfolio termination plan and to make clients aware of the termination process at the outset of establishing new arrangements with them.”

The FMA will be publishing guidance to outline it views on good practice for providing DIMS and expectations of AFAs. It said AFAs who were licensed to provide DIMS but were not doing so should notify the FMA and request cancellation of their DIMS authorisation, and update their disclosure statement and ABS accordingly.

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