INCLUDING THE RIGHT INGREDIENTS
– AND PUTTING DUE DILIGENCE IN CONTEXT Matt Ward, Communications Director at AKG, looks at the requirement for carrying out due diligence exercises when selecting (or retaining) DFM partners, suggests an overarching framework which can be used by intermediary firms to support this type of work and discusses why it’s important to contextualise and review such exercises. The requirement for due diligence It is in the best interests of intermediary firms to carry out robust, repeatable and recordable due diligence exercises when selecting (or retaining) partners for their business, including outsourced investment partner such as DFMs. These exercises should be done to facilitate best practice within the intermediary firm and, crucially, to support the delivery of good customer outcomes. Furthermore, the regulator remains keen to see evidence of deeper and more engaged due diligence being carried out by firms. In a market experiencing great change and challenge, due diligence will continue to play an important role and intermediary firms should be reminded that this is something which should be done when first identifying and selecting DFM partners, and then reviewed to support retention decisions on an ongoing basis.
Putting a due diligence framework in place There are a variety of ways in which intermediary firms might go about their due diligence exercises and they should certainly be encouraged to tailor these to meet the
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specific requirements of their firm (from both an investment beliefs and business model perspective) and crucially their clients. In order to establish a robust and repeatable due diligence framework when selecting or reappraising DFMs, and to create a supporting audit trail, AKG proposes a balanced four-step process which can be tackled in any order and seeks to cover the following overarching areas: Step 1 – Proposition research and analysis Step 2 – Investment style and performance analysis Step 3 – Operational capability and service delivery Step 4 – Company-level assessment.
A suggested four-step framework Step 1 – Proposition research and analysis The nitty gritty research and analysis required to search the market and compare what's available in terms of the proposition(s) being marketed by DFMs to intermediary firms, i.e. What type of investment portfolio/ service does the customer need? Who does what and how does it compare? Items may include analysis of:
