14 Relationships between advisers and DIMs Professional Indemnity (PI) Insurance Adviser firms need to ensure that their PI insurance covers them for their business model and any activities they undertake. This would include using a discretionary management proposition which may be a change to the adviser firm’s existing business model. There has been some concern that PI insurers are reluctant to insure adviser firms acting on the agent as client basis. Feedback from the PI market is that insurers insure risk and will make a judgement of that risk based on the information provided to them. What’s important is that advisers are able to articulate to PI insurers how arrangements are structured and what their roles and responsibilities are. Applying for or renewing PI insurance is one of the most important tasks an adviser firm does and thorough preparation is required. The key points of interest for insurers when assessing arrangements with DIMs are whether: • The respective roles and responsibilities of the adviser firm and DIM are clearly defined and documented • The arrangements have been clearly disclosed to the investor • The investor understands who is doing what and the implications of the arrangements for them • The investor has given their informed and explicit consent to the arrangements • Relevant due diligence has been carried out to select an appropriate service • There is a robust governance and monitoring programme in place These considerations apply in relation to both the agent as client and reliance on others scenarios. Chapter one - Relationships between advisers and DIMs Some IFA PI Insurers are keen to know about the relationship a firm has with any DIM that they work with and whether it is on an Agent as client or an Agent of client (reliance on others) basis. They want to know that the obligations between the adviser firm and DIM are clearly articulated, particularly around suitability and the selection of the underlying financial instruments for the discretionary mandate . They are keen for firms to confirm that they regularly review their Terms of Business with the DIM and are aware of all their duties under the agreement and this should be confirmed during the renewal process. This can be especially relevant where a firm has a number of advisers possibly dealing with more than one DIM who may each have different requirements under their Terms of Business. It is therefore vital that there is a system in place to manage this to ensure that none of their responsibilities are overlooked and potentially leading to a claim against the firm. Julian Brincat, Director, Protean Risk
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