According to new research by adviser due diligence and research service, Diminimis, two thirds of the 300 advisers surveyed were unsure about the division of responsibility.
18.4% said they did not know at all, 9.8% believed responsibility automatically transfers to the DIM, while 39.2% thought it always remains with the adviser.
“Just 32.7% understood that responsibility for investment suitability varied depending on the agreements in place,” the firm said.
David Gurr, founding director at Diminimis said: “As many in the industry refer to the use of third-party investment solutions – such as DIMs – to meet clients’ investment needs as ‘outsourcing’, they should consider the message they are actually conveying.
According to Gurr, the danger lies in the advisers assuming the DIM is responsible for more than he or she actually is and, as a result, “they may not have the necessary systems and controls in place for the areas they are responsible for, leading to a ‘suitability gap’ – and leaving themselves open to huge business risks.”
The research showed that while just over 42% of advisers still do everything in house, 26.1% believed their use of DIMS would increase in the future, while 51% thought the current level would remain the same.
