Financial advisers have been offered a discretionary investment management services (DIMS) disclosure escape clause under proposals floated by the regulator last week.
The Financial Markets Authority (FMA) would exempt Authorised Financial Advisers (AFAs) from the requirement to supply product disclosure statements (PDS) for “personalised” DIMS.
While ‘personalised’ DIMS – or model portfolios tailored for individual clients by AFAs – are governed by the Financial Advisers Act (FA) they must also meet ‘part 3’ disclosure rules of the Financial Markets Conduct Act (FMC).
However, DIMS licensees, who fall directly under the FMC ambit, have already been granted an exemption from part 3 compliance.
In its discussion document released last Wednesday, the FMA says the legal discrepancy could “commercially disadvantage” AFAs who deal in personalised DIMS.
Agreeing with industry arguments, the FMA says personalised DIMS and DIMS licensees both had to meet similar assessment and governance standards.
“Furthermore, in providing the service, both AFAs providing personalised DIMS under the FA Act and DIMS licensees are required to have a client agreement and an investment authority,” the FMA document says.
According to the FMA, AFAs are “financial professionals” who should be able to source enough information about products in personalised DIMS without reference to a PDS and make investment decisions for retail clients “whether the offer is regulated or not”.
The regulator says providing the service is offered by a DIMS-approved AFA (who is also responsible for selecting the underlying securities) it would support a personalised DIMS disclosure reprieve.
“Given the feedback we have received from industry, we propose to consider an exemption so that an offer of financial products to a retail person does not require part 3 disclosure and will not be a regulated offer,” the FMA document says.
However, the FMA says the exemption would not apply to AFAs providing ‘contingency DIMS’ “whether that AFA is also authorised to provide personalised DIMS or not”.
“An AFA providing contingency DIMS is only permitted to make an investment decision for their client in exceptional cases and, therefore, PDSs should be provided to their retail clients when they are providing a contingency DIMS,” the FMA document says.
As at publication date, the FMA website lists 19 licensed DIMS providers, 11 of which are financial advisory firms. Only a handful of AFAs were expected to go down the personalised DIMS path, with just two approved so far.
Submissions on the personalised DIMS disclosure exemption proposals close on October 8 this year.