Agent as Client vs Reliance on Others: A Comparative Overview

Agent as Client Model

?In the Agent as Client model, the adviser acts as the client of the Managed Portfolio Service (MPS) / Discretionary Fund Manager (DFM) provider and is categorised as a 'per se professional client'. Here’s a detailed analysis of this arrangement:

Regulatory Protections:

• Loss of Protections: The end client does not benefit from standard regulatory protections such as cancellation rights and access to the Financial Ombudsman Service (FOS).
• Compensation Claims: Clients can claim compensation through the adviser against the Financial Services Compensation Scheme (FSCS) if the MPS/DFM fails and owes money.

Suitability of Investments:

• Investment Agreement: Advisers must ensure that the MPS/DFM only invests in assets suitable for retail clients despite being treated as a professional client.
• Best Interest Duty: If investments are unsuitable, the adviser may be seen as not acting in the client's best interests.

Responsibilities:

• Full Accountability: The adviser holds full responsibility for advising on the suitability of the MPS/DFM, selecting the portfolio, and continuous monitoring.
• Complaint and Compensation: In case of a complaint, clients may only pursue the adviser, as there is no direct contract with the MPS/DFM. The adviser might then need to take action against the MPS/DFM.

Professional Indemnity Insurance:

Monitoring and Notification: Advisers need to monitor the MPS/DFM closely and inform their Professional Indemnity (PI) insurer of their operating regime.

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?Reliance on Others Model

?The Reliance on Others model maintains the adviser as the central figure in the client relationship but introduces a direct investment agreement between the MPS/DFM and the end client. Here’s a closer look at how this operates:

Regulatory Responsibilities:

• Shared Duties: The MPS/DFM takes on regulatory responsibilities for the client, being categorised as a retail client, thus ensuring regulatory protection.
• Adviser’s Role: The adviser remains central, orchestrating the contract and providing essential client information to the MPS/DFM.

Contractual Arrangements:

Direct Agreements: Contracts can be either two-way (between MPS/DFM and client) or three-way (including the adviser). The adviser initiates the process and handles client discussions.

Regulatory Framework:

-COBS 2.4.4R Compliance: The reliance on others is guided by COBS 2.4.4R, ensuring both MPS/DFM and adviser meet their regulatory duties to the end client.

Client Protections:

• Regulatory Protections: Clients benefit from FOS protections, cancellation rights, and can claim against the MPS/DFM via the FSCS if owed money.
• Duty of Care: Both the MPS/DFM and the adviser have a regulatory duty of care to the client, promoting a robust and compliant working relationship.

Summary

?Choosing between the Agent as Client and Reliance on Others models depends on various factors including the level of regulatory protection required, the adviser’s capacity to assume responsibility, and the preference for direct versus intermediary relationships.

Agent as Client:

• ??? Pros: Direct control over the MPS/DFM; potential for higher customisation.
• ??? Cons: Increased responsibility on the adviser; reduced client protections.

Reliance on Others:

• Pros: Shared regulatory responsibilities; enhanced client protections; potentially lower risk for the adviser.
• Cons: Requires robust collaboration and communication between the adviser and MPS/DFM.

Advisers should carefully consider these aspects, ensuring that they act in the best interests of their clients while managing their own professional liabilities and regulatory obligations effectively.