13 Relationships between advisers and DIMs Research and due diligence The structure of the arrangements between an adviser firm and DIM should form part of the adviser firm’s research and due diligence process. An adviser firm’s research and due diligence process needs to include a thorough assessment of the DIM’s investment proposition and proposed investment mandate as well as considering other factors such as financial and operational resilience. When acting purely for retail investors, the adviser firm will need to satisfy itself that the investment mandates the DIM is running are suitable for retail investors - for example that they only include funds / financial instruments suitable for retail investors. Under the Consumer Duty, DIMs need to consider the retail customers who use the service they provide even if those customers are not direct clients of the DIM. However, this ‘look through’ process will be undertaken at a target market level (i.e. is the MPS designed in such a way as to deliver good outcomes for the retail clients in its target market in general?) rather than at the level of individual underlying clients. Some DIMs may decide to use financial instruments that are targeted at professional investors rather than retail clients, but with the proviso that the overall portfolio continues to be suitable for a retail investor. It is important in this scenario adviser firms assess whether such an approach meets the requirements of the underlying investors and provides appropriate outcomes for investors. With an MPS, it is the responsibility of the DIM to document a clear target market for each portfolio it is running and explain the investment proposition and mandate clearly to adviser firms to allow them to undertake their due diligence. This disclosure should include clear information on what type of funds / instruments the investment proposition could contain. Where the investment proposition includes funds / instruments not targeted at retail investors, this should be made very clear. Chapter one - Relationships between advisers and DIMs
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