21 Structure of arrangements - Agent as client Suitability obligations Adviser Under the ‘agent as client’ scenario, it is the responsibility of the adviser firm to ensure that the discretionary management proposition it recommends to investors is suitable. A discretionary management arrangement may not be suitable for all clients – particularly those with limited knowledge and experience or characteristics of vulnerability. This suitability assessment needs to be undertaken at outset and on an ongoing basis (periodic assessment of suitability) where an ongoing service is provided to, and paid for by, the client. The adviser firm will need to explain why/how the discretionary management proposition meets the individual client’s needs and objectives in its suitability letter. Where an ongoing service is provided to, and paid for by, the client, the adviser firm needs to ensure the ongoing suitability of the discretionary management service for its clients. To meet these requirements, the adviser firm should obtain confirmation on a regular basis (minimum annually) that the DIM has conformed to the terms of the investment mandate. This includes seeking confirmation that the investment mandate remains appropriate for its identified target market and underlying retail investors. Discretionary Investment Manager It is the responsibility of the DIM to explain the investment proposition and mandate of its service clearly to adviser firms and to disclose the target market that it has set for it. Once the mandate has been agreed, it is the responsibility of the DIM to run the service in accordance with the mandate agreed and in accordance with the target market. DIMs have their own suitability obligations. The DIM needs to manage the investments in accordance with the mandate. It also needs to ensure that its decisions to trade are suitable and all transactions are consistent with the investment policy / strategy that has been agreed. It is only by managing the investment to the agreed mandate that the DIM can demonstrate that each trade is suitable. Under provisions in COBS 9A.3, a periodic assessment of suitability must be undertaken at least annually and transmitted to the client (i.e. the adviser). Chapter two - Structure of arrangements - Agent as client
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