lrtr
[oTTI CAN DISCRETIoNARIES STEER CLEAR oF
HE RETAIL DISTRIBUTION REVIEW GREY ERTT?
rag3's rnust test themselves against five criteria to ensure they don't inadverlently give inves:-=-:
i'. :-i A.lthority (FSA) has told discreUonary
gs-< ::
-1-s iieir business models in the rLtn up to
js:-.-i-a-c
a
:-
id
revew (RDR) to ensure they cannot be
advce to clients. Othel1vise the
:,il_o -_ aa" ihe scope of the new reg me
s r:as3aa:c guarantee that investmeni advice or
E
:e r', _: .. esiment
::r: i':-: )r^e dalo ,^,ll,Fv6 begrF
ttrr --: '-2-:' ng ard ong term relationship behreen
t
3-,: :-:'lscreionary manager? Can d scretionary
Eals::.a - a-: in pace measures io ensure cljents
:€ noi receving investment advice?
=.: _::_:_,
::
:_:
Commrtlee ol European Securties
=r:
a:- '.-: '-:..d 1' '. r b. 1.t lo g /e "d, _a on
a,Es -:_: aroducts (see below).
sse-,:: :_: i-fin t on re ates to whether a personal
rE 'r:::_ s ce ng gven
-.ancal
in reation to one or more
c:c.s instruments, presented as suitable
4 :. : ::.sderation of the personS c rcLrmstances.
The specific reference to d scretlonary lirms hav ng to
consider carefuliy whether or not they are also provding
adv ce' n the FSAS consu tation paper 09/31 could prove
an ssue for a number of wealth management bLtsinesses,
according to Paul Chavasse, ch ef operat ng officer at
Rathbone nvestment lvlanagement.
'Mlost of what you do as a discretionary fund manager
does not Jal Lrnder the RDR ' he sa
Ho\,!ever, for a
fund manager to say "l am never go ng to discuss that',
and to say they w I never give aclvice about a co lectve
or investment product across their c ient base is diffcult,
unless you get someone internaly to give regu ated
adv ce from a different ent ty.
But to refer the clent to an internal advisory department
rather than to an externaladvser could throw into qLtestion
the firm's 'ndependent' labe, Chavasse sad.
ln add t on a manager who seeks to clarjf,/ to the
c ent that they are managing nvestments rather then
provd ng advice cou d run the rsk of'creat ng an artifcia
divide, wh ch a client may not understand , he adds
d
FtyE KEY TESTS FOR INVESTMENT ADVICE
:1,.:;
Chavasse s xai -tr ':lurther clanlication ca
sublect from the FSA .-does not expeci ihe RDF :c
prove a signifcant challenge
:-:
for Rathbone.
He points to the fact
that 95?; of the firm's
c i-.nt base are d scretionary
mandates. An average
c ent portfo io has about
2570 to 30% in collectives
falling under the FDR
while the rest tends to be
direct equites and bonds
Also, Chavasse est mates that aboul 90:: ci
Rathbone's managers now meei the RDF rlat.cai a
requ rements, and the rema ning T 0c/. are n :-e orccl
of qua ify ng
Chavasse's concerns are echoed b! Reona.rae
Bentley's head of nvestment services. Gec.c -a ty' tch
She s a/so walting Jor further ctarifcation iro.l. ih€ FSA
-
L
L
-Ora, O rob^ a.dbee\6s.e: -.
.o.
between advice and managing nvestmenis s aci€.i a
hard to rna nta n n the context of a onc-ieflrr r: ai rns
De
b. ,re::re setuice belng offered constitute a
i€a-.r'endation?
a
q
YES
$.
s
-a':aommendaton in reat
on to one or more
:=..a:a:ions in financal nstruments?
b
&
is
-€
sj'=cle?
as
b)
of the person's circumstances?
YES
*
s:_:
€'
.ecommendat on issued other than
through distr but on channels or
pub c?
=r: -s vely
:::-:
s
based on a consideraUon
YES
How to
d
stingujsh gener c adv ce and general
Whdth. F, o-rrpno rg
a
-.1
Ce
o. d 'e1ico ca-
amount to rnvestment adv ce
.ecomrnendat on at east one of the fo ow ng:
al c.-sented
Whether assist ng a c ent to f ter inforrnation
amounts to a recomrnendat on
ro O.1 andalo->lroa ^.F---.ld rdO
€
YES
The d fference between infonlat on and a
recommendation
a
w
How a Jjnancial instrumenl mlght mplicity
be presented as suitable
The impact of discaimers
What it means to consider a person's
circumstances
Assess ng recommendations de vered via
the internet
Assessing recommendaiions glven to mult
clients at once
YES
s
Distributlng investment research
E -e recommendaton made to a person in his
czcaciiy as one of the fo low ngi
ala_
nvestor
or
ci€.iia investor?
YES
s
b)
an agent foran nvestor
or potental nvestor?
YES
s
dentry ng investors and the r agents
The dist nction between corporate finance
advice and nvestment adv ce
p e
" re . d opartte
e be ieves
it s
^Fd-h
-dr dge.
cularly difflcu t ioT man ace.s ,
communicate regularly with the r c ents and r.,hc : lr
de iver good customer serv ce to ma nia n the ad.. s:,
d scret onary d vide.
'As understand it, pure d scretonary manager:-:
s very much a remote Teat onsh p, but we clo noi ha,.:
remote reationsh ps with clients.
'We have conversations wth our clients and durrg
these conversatons they may say, "my situation has
changed" so we wou d say that we
look to chang€
the asset a ocaton in the pofdo o.
'By saying this you cou d be seen to be g ving advic
as you have had a discLtsson wth the cient and
suggested something may su t them When you havl
a re atlonsh p wth the clent it sdiffcutto cllstinctuis
between advice and discret onary management,,
M tche I sa d.
To avo d the danger of b urr ng the ines between
discretionary ancl advsory mandates, lan Wi ams, ch ef
executve of Chafreris Treasury Porlfolo
sad
he would consider asking the f rm's smal^/lanagers,
portion of
advisory c ents, wh ch amounts to jLrst 5% ofthe clent
base f they w ll move over to cl scret onary.
Yet he was a so keen to h ghlight that h s nvestment
management tearn are a I qua ified for RDF so they
should not be affected substantally by the regu aton.
an Cornwall, head of regu at on at the Associat on
of Prvate Cltent lnvestment N.4anagers and Stockbrok
does not expect the focus on the d stlnct on between
investment advice and manag ng investments to provl
to be a s gn ficant cha enge for d scret onary manager
'lthink firms are reasonaby carefu not to gve
nvestment advce. What we teif rms is, ,'make sure you
understand the ru es' and what const tutes adv ce or
managing nvestments, he satd
Sh
,,
w