The discretionary investment management service (DIMS) sector has been earmarked for closer scrutiny following a recent regulatory information-gathering exercise.
In an update published last week, the Financial Markets Authority (FMA) says the results of recent survey of retail DIMS providers found “there may be some gaps in their interpretation of obligations and conduct that may negatively impact investors.”
“Areas of specific focus include risks relating to conflicts of interest management, excessive portfolio turnover, inappropriate position limits and benchmarking, misclassification of services, and lack of controls around financial advice,” the FMA note says.
“Our next steps will be to monitor DIMS entities in consideration of the risks we have identified.”
The regulator slated the DIMS sector for a ‘risk assessment’ in the previous financial year after the project faced several previous delays – most recently during the COVID-19 lockdown era.
However, the FMA kicked off the process during the 2022/23 financial year with the survey that took in some 55 DIMS providers licensed for retail purposes.
The questionnaire probed firms for details on how various factors such as governance, policies and systems align with compliance obligations and to “achieve positive investor outcomes” for investors.
According to the FMA website, the regulator currently lists 52 licensed DIMS providers ranging from sole-person advisory firms to large institutions such as banks and broker-based wealth management firms.
While detailed DIMS data is scarce, figures from the Reserve Bank of NZ indicate the sector accounts for about $45 billion – or slightly smaller than the $50 billion plus retail fund market (excluding KiwiSaver and superannuation).
The government reformed the DIMS rules in the wake of Ross Asset Management ponzi scandal that revealed a hole in the disclosure regime. All firms offering fund-like ‘class’ retail DIMS – as distinct from individualised adviser-managed portfolios – were required to be licensed by November 2015.