PFS: due acknowledgement for due diligence review
23 February 2016
The Personal Finance Society (PFS), have commended the ‘constructive approach’ shown by the FCA in their latest thematic review (TR16/1), on research and due diligence.
“It is particularly encouraging that they have led with the significant evidence of good practice found within the firms reviewed,” said chief executive, Keith Richards, “whilst naturally highlighting areas for improvement.”
Almost 12 months ago to the day, the PFS launched their adviser good practice hub, with the first subject focused on due diligence. Created in partnership with Diminimis, one of the leading impartial experts on research and due diligence for advisers on discretionary investment management, it provides clarity and guidance around the process.
According to Richards, member research had identified due diligence as an area which advisers often find confusing – highlighting the need for it to be designated as an area of regulatory focus.
“Good practice guidance on due diligence provides greater clarity for advisers when selecting, or reviewing legacy arrangements for the appropriate investment solutions for their clients,” he affirmed, adding that Diminimis have just concluded their latest update for the guidance hub, with a revised set of questions for use by advisers, following input from a newly-formed PFS practitioner investment panel. This will be available on the good practice hub in early Q2.
Rory Percival, the Financial Conduct Authority’s technical specialist recently stated: “Of all the cases we have looked at over the last four or five years pretty much 100 per cent of unsuitable advice came back with one of three answers – and inadequate due diligence featured prominently amongst them.”
Richards said: “We are in a new era of professional ‘services’ and due diligence is seen in a different context. Advisers are committed to do the right thing for their clients and understanding the expectations of the regulator. This latest review therefore is well timed and we will make sure that we incorporate the FCA’s findings within our latest good practice update on the subject.”
David Gurr, founding director at Diminimis, expanded further: “If something goes wrong, advisers will usually find themselves in the firing line, so from the outset they need to be asking the right questions of the DIMs in order to move forward with confidence. The new document helps identify them,” he commented.
“It’s good news for discretionary investment managers too and will help cut costs and wasted resource, thanks to a standardised approach. This will provide a sound foundation on which advisers and DIMs can work together for the benefit of their clients.”
Keith Richards concluded: “We are pleased that the FCA continue to be pragmatic and more constructive. In acknowledging that there are some shortfalls, their primary focus has not been on problems, as it has tended to do in the past.
“The result is a review that is encouraging in tone and which connects co-operatively with the adviser community. As the sector’s largest professional body, with more than 36,000 members, we believe robust due diligence guidance benchmarks are essential to enable advisers to interpret the rules effectively and efficiently.”
